Life Insurance for a Newborn Baby

The primary purpose of life insurance is to protect and provide for dependents in the event of the death of the head of the household. As a result, taking out a long-term life insurance policy on a newborn makes little sense, because no one is financially dependent on babies. Purchasing a minor policy for a baby, on the other hand, may provide benefits in certain situations, such as providing for burial expenses in the worst-case scenario.

Another option for life insurance is to buy a whole life policy, such as the Gerber Grow-Up plan for your newborn, to use as a financial savings vehicle because a whole life policy accumulates cash value over time. Depending on the insurer, the policy can be transferred to the child when they reach a certain age, such as 18 or 21. When the policy is transferred, the child has the option of keeping it and continuing to accumulate cash value, or cashing it out and canceling the policy, which eliminates the death benefit.

How Life Insurance Works

First, a primer on insurance. If the insured dies while the policy is in effect, a sum of money is paid to a named beneficiary. To keep the policy active, the policy owner must pay a premium, which is usually paid monthly.

Term life insurance and whole life insurance are the two main types of life insurance. Term life insurance only pays out if the insured dies within the specified term, which could be 10, 20, or 30 years. If the insured outlives the term, the policy will expire without payment, unless the owner converts it to a whole life policy. A whole life insurance policy remains in effect as long as the premiums are paid.

Because most term life policies do not pay a death benefit, the premiums are much lower than those for whole life policies, which always pay out (unless the policy owner lets them lapse). A 30-year-old male nonsmoker in Florida, for example, can obtain a $100,000 term life policy covering 20 years for about $9 per month. A whole life insurance policy with the same death benefit would cost him $50 or more per month.

While term life insurance provides the most protection for the least amount of money, some people prefer whole life insurance because it also serves as a tax-advantaged savings vehicle. A portion of each premium payment is deposited into an account that accumulates interest over time. The amount of money in this account represents the cash value of the policy. The policyholder can borrow against this money or even redeem their policy in exchange for it, effectively foregoing the death benefit.

Babies and Term Life Insurance

At first glance, infant insurance appears to be counterintuitive. Life insurance covers the loss of a breadwinner, not a child. Household finance experts advise purchasing enough life insurance to cover dependent children until they reach adulthood. For example, a person earning $100,000 per year with a 10-year-old child requires $800,000 in life insurance to provide for the child until the child reaches the age of 18 and is considered old enough not to require a guardian, at least legally.

No one relies on babies for a living because they do not generate income. While the loss of a child is tragic for parents, it has few financial consequences: The baby does not cause a loss of income for the family. As a result, one could argue that purchasing life insurance on an infant's life, even if it is a relatively inexpensive term policy, is unnecessary and a waste of money that could be put toward more useful or necessary expenses, such as college savings.

Aside from the direct financial benefits, a life insurance policy for a child can assist in defraying the costs of counseling, time off from work, and other expenses associated with a loved one's untimely death, allowing more room for the grieving process and emotional recovery.

When Life Insurance for Babies Makes Sense

However, there are a couple of compelling reasons to purchase at least a small life insurance policy for a newborn. The first is to have money set aside in case the worst happens and the child dies young.

Burial procedures and expenses typically range between $7,000 and $12,000 as of 2021, according to the most recent statistics available as of May 2022; the average funeral costs around $9,000 today, up significantly from around $6,000 at the turn of the twenty-first century.

The death benefit from a child's life insurance policy may be enough to cover those unfortunate expenses. In the event of a long-term illness, it may also compensate parents for medical expenses that are not covered by health insurance, allowing them to avoid burdensome debt.

Furthermore, the younger the insured, the lower the cost of life insurance. Some parents prefer to lock in a low premium so that their child has affordable coverage when they reach adulthood. It is often more cost effective to supplement an existing policy than to purchase an entirely new one. Furthermore, many adult life insurance policies include child riders for a few dollars per month. Why not purchase the protection if it will provide some peace of mind? Even if it's a claim that no parent wants to make.

Can You Get Life Insurance for a Baby?

Yes. You can purchase life insurance for your child or baby. The majority of life insurance policies for children are whole life insurance policies with a cash value component. When a child reaches the age of 18 or 21, depending on the insurer, they can take ownership of their policy, continue coverage, or cash out and cancel it.

How Much Life Insurance Should I Have for a Newborn?

Although most newborns do not require life insurance, some parents may choose to buy a whole life insurance policy with a cash value component for their child. Furthermore, life insurance for children can protect you from funeral costs, grief counseling, and other death-related expenses if your child dies tragically and prematurely.

Does Life Insurance Cover Death in Childbirth?

If a mother dies during childbirth and has a life insurance policy, the policy will cover the mother's death but not the child's.

Should You Get Life Insurance Before You Have a Baby?

Yes. You should ideally obtain life insurance before becoming pregnant, as it may be more difficult to be insured at a reasonable cost once pregnant, depending on various health factors.