Term Life Insurance: The Non-Negotiable
If you have a child who depends on your income, you need life insurance. Full stop. Term life is the right choice for the vast majority of new parents — it's affordable, straightforward, and covers you during the years your family needs it most.
Both parents need coverage, even if one doesn't work outside the home. The cost of replacing childcare, household management, and everything else a stay-at-home parent does is substantial.
Term vs Whole Life: Simplified
Insurance agents love to sell whole life policies to new parents. The pitch sounds compelling — it builds cash value! It's an investment! — but for most people in their 30s, term life is the better choice.
Term life costs a fraction of whole life. Take the difference and invest it in your 401(k) or index funds — you'll almost certainly come out ahead. Whole life makes sense in some specific estate planning situations, but those usually don't apply until much later in life.
Review Your Health Insurance
Adding a baby to your health plan is a qualifying life event, so you can make changes outside of open enrollment. This is a good time to re-evaluate your plan:
- Does your plan have good pediatric coverage?
- Are the pediatricians you want in-network?
- Would a different plan (higher premium, lower deductible) save money with the added doctor visits?
- Are you maximizing your HSA or FSA for baby-related expenses?
Disability Insurance
This is the coverage most new parents overlook. Your ability to earn income is your most valuable asset — disability insurance protects it if you get sick or injured and can't work.
Check what your employer offers (many provide short-term disability). For long-term disability, aim for a policy that covers at least 60% of your income. If your employer's coverage is limited, supplementing with an individual policy is worth the cost.
Education Plans: The Myth-Busting
You'll hear about insurance-based education savings plans. Skip them. A 529 plan is almost always the better choice — better tax advantages, more investment flexibility, and lower fees.