A guide to life insurance for new parents

For any new parent, the birth of a child is a life-changing experience. You soon find your concerns are less about your own security and more about your little one's.

At a moment of such hope and excitement, it's difficult to think you may not always be there for them. But preparing for that day now can be the most meaningful action to take. For many new parents, that includes considering life insurance.

With a child here or on the way, you and your spouse are likely dreaming up all that's in store for your growing family—all the traditions, special occasions and graduations to come.

Life insurance can be one of the best ways to protect those well-laid plans, ensuring you leave behind a legacy for your family to build upon. That's where the death benefit from your life insurance contract comes in. This can help your loved ones process their loss while keeping all those dreams you envisioned alive. The tax-free payout¹ can offset costs where you would have contributed, sending your kids to college, helping to fund a wedding and even keeping up with day-to-day expenses.

Depending on your coverage, your contract also may let you build cash value to tap during your lifetime. As that balance grows, you can use it to support those meaningful family moments while you're alive, or as a fallback plan for any unexpected financial needs.²

It's never too early for new parents to start thinking about life insurance. You're more likely to pay lower premiums the younger and healthier you are, helping you save in the long-run. Plus, if your contract comes with the ability to build cash value, you'll be able to accumulate that growth over time.

The reality is that anyone could experience health changes at any time in their life, so it’s important not to delay applying for coverage.

Two main categories of life insurance are best suited for young parents: term coverage and permanent coverage.

When your family is growing, affordability may be a higher priority for you. If you're looking for financial protection that won't strain your budget, term life insurance could be a nice fit. As long as you pay the premiums, coverage remains in force during the term you select—usually 10 to 30 years. Most contracts let you lock in premiums, so you don't have to worry about your costs increasing over the term.

Generally, term insurance may be the best option if you're primarily interested in the death benefit feature and aren't ready to invest in permanent coverage quite yet. The downside is that your financial safety net ends when the contract expires, so you'll have to apply for a new contract if you want to extend coverage.

With permanent life insurance, your contract is active as long as you pay your premiums, so you can feel secure about your family's financial health well into the future. Like term insurance, permanent life insurance provides a tax-free benefit to your heirs when you pass away, enabling them to replace your income or handle major expenses down the road. But it also gives you the ability to build cash value that your family can tap whenever a financial need arises.

These contracts tend to have higher fees, including potential surrender charges if you let the contract lapse within the first few years of owning it. Permanent life insurance may be the better option if you're able to balance the cost with your family's other financial goals, especially as new parents.

Permanent life insurance comes in a variety of forms, including:

Whole life insurance provides guaranteed lifetime coverage with premiums that never increase. The insurer pays a guaranteed rate of interest on your cash balance, enabling you to grow your assets regardless of economic conditions.

Universal life insurance is designed for people who desire flexibility. This type of life insurance allows you to increase or decrease the premium and the death benefit as your needs change.³ Your cash value grows based on your guaranteed minimum interest rate.

Variable universal life insurance contracts also offer flexible premiums. But because you allocate your cash balance toward investment subaccounts, they offer the potential for greater returns. If the market performs well, your cash value may grow faster than whole life or universal life contracts. If the market performs poorly, however, your contract could lose value.

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To determine how much life insurance you need, multiply your salary by the years until your retirement. This calculates your future earnings, or how much you'd lose out on if you died today.

While that process may work for some, every family is different. Assess your unique situation to figure out how much coverage to buy.

When estimating your contract size, think about:

• How much income your spouse or your child's guardian may need to pay for everyday living expenses.
• How much they may need for future expenses, including your child's college tuition, wedding or the down payment on a home.
• The amount of any outstanding bills your family may need to pay off.
• How much you plan to give to charitable organizations or your church.

Thrivent's life insurance calculator also can be a good tool to help you determine the amount of coverage you need. Having an appropriate safety net can provide a sense of reassurance, knowing your loved ones can maintain their current lifestyle even if you're no longer there.

As you make your calculations, keep in mind that the primary breadwinner isn't the only spouse who may need coverage. Stay-at-home parents and those who work part-time provide child care and other valuable services that would need to be replaced if they were to pass on. With an insurance contract in place, the surviving spouse has the freedom to take an extended break from work or hire caregivers to help support their children.

When you purchase a contract, you select a primary beneficiary (or beneficiaries) and a contingent beneficiary, who receives your death benefit if the primary beneficiary passes away or becomes incapacitated before your death. Often, new parents choose a spouse to be their primary beneficiary, although the beneficiary can be any person or charitable organization you choose.

In some cases, you may name your child as a contingent beneficiary as well. But more often, parents of young children often choose to set up a trust that stipulates how their assets should be appropriated. If you name a minor as a beneficiary, the minor's legal guardian usually controls the benefit until the minor reaches the age of maturity, which varies by state. In these cases, naming the trust as a primary or contingent beneficiary can help your beneficiaries avoid a lengthy probate process. Parents with young children may want to meet with an attorney to create a will, trusts and/or health care directives to ensure your family has an estate plan in place. While Thrivent does not provide specific legal or tax advice, we can partner with you and your tax professional or attorney.

As a new parent, your most immediate need is insurance protection that covers your own life. However, as remote as the possibility may seem, you also may want to consider what your family might do if something were to happen to your child.

One option is to purchase a juvenile life insurance contract, a type of permanent life insurance, for your newborn child. In addition to helping you cover any final expenses if anything were to happen, permanent life insurance contracts let your child lock in rates at an age when it's most affordable. Buying a contract now allows them to retain coverage throughout their lifetime, regardless of their future health status.

As you pay your premiums, your child's contract accrues cash value that they can eventually borrow, tax-free. This feature can help them manage future expenses like college tuition or the down payment on their first home.

Life insurance for new parents can help financially protect your family, even if the unexpected should happen. If you have a growing family, talk to a financial advisor who can help you better understand your options and identify the amount of coverage you need.