New parents and understanding insurance changes:
As a father of two, I am familiar with the stress becoming a parent. If I turn back the clock however, I don’t know how focused I was on the insurance needs and changes at every step of similar life changing events, but I now have the wisdom to recognize the importance of both the event/journey and the need to evaluate how life changing events impact your financial and insurance needs.
A new baby touches every part of a family’s life, including their insurance, risk profile and personal finances.
These are some of the changes that may occur, the National Association of Insurance Commissioners (NAIC) also suggests these steps to help new parents protect their growing family.
Understand your coverage before the baby arrives. Review coverage options and find out exactly how your health care plan handles the costs of a new baby. Babies and delivery are expensive. Remember to consider other costs such as prenatal vitamins, prenatal and neo-natal screenings and tests, emergency procedures, delivery (C-section and traditional) and pediatric care.
Notify your insurer of your new baby. Make sure you are aware of the deadline and requirements to register your newborn with your health insurance company. Similarly, if you are adopting a child, consult your employer and health insurance provider for the requirements to obtain health insurance coverage in advance. For more information, check with your state insurance department at NAIC State map.
Again always evaluate your options in advance. If both parents have employee benefit options, compare the health insurance policies to see which one best fits the needs of your family.
Most plans will require some type of co pay. Review the co-pay amounts and different options carefully to see exactly what is covered – and what isn’t – for both parents and children. Most companies will allow you to make enrollment changes when a baby is added to the family. Check with your benefits administrator at your office about your options or contact your provider about changes.
Make use of tax advantages. Ask if your employer offers a flexible spending account or health savings account (HSA). These plans allow you to set aside pre-tax dollars for medical expenses and child care. There is great value in using pretax money for medical costs, depending on your tax bracket the benefit can grow as you are in a higher bracket. But as an example if your in the 30% tax bracket it is considerable savings – if you put $2,000 into a pre-tax account ($600).
Plan the contributions of both spouses. Consider covering both spouses with life insurance, even if one is not employed outside the home. In the event of the stay-at-home parent’s death, the insurance policy can help the surviving spouse with the financial necessities of the household. Child care is expensive and a large part of a family’s expenses, the sudden loss of an income or loss of a caretaker can be a big swing in family financial situation (not to mention the emotional loss).
Account for child care costs. In determining the amount of life insurance to purchase, take into account your full child care costs (housing, education, child care, medical needs, etc.), especially for children under five years old or for kids with special needs. Please note, this estimate will have a lot of assumptions and being wrong can be quite costly, so also ask trusted advisers for help.
Understand the types of life insurance. Understanding your life insurance choices will help you weigh the costs and benefits of whole life versus term life insurance as part of your overall financial plan. See article about how millennials are buying life insurance.
Whole life insurance
Whole life insurance policies build cash value and pay a death benefit, but are more expensive.
If you can’t afford whole life insurance right now but think you may want it in the future, consider term life insurance with a conversion option that will let you change to a whole life policy for a fee when you are ready.
Term life insurance
Term life insurance offers death benefit protection for a specified time period. For example, term life insurance may be appropriate during your child-rearing years or while paying off a mortgage. Term life premiums increase as you age. Term life is typically less expensive in your younger years than permanent life insurance, which covers you for your entire life and typically has level premiums.
Keep your policy current. Remember to update your policy to include your children as beneficiaries. If your children are under the age of 18, name a trustee who would administer the benefit of the policy until they are adults.
Check rates before upgrading vehicles.
Auto insurance premiums are linked to vehicle age and type, so if you decide to get a larger vehicle, like a mini-van or SUV, to transport your family, it could affect your premiums.
Plan for carpools. Consider increasing your liability insurance in case of an accident when transporting other kids.
Notify your insurer of major additions. Alert your insurance company when making any major home improvements (usually anything over $5,000) to prevent being under-insured.
Protect your backyard.
Inform your insurance company if you install backyard items for kids, such as a swing set, trampoline or swimming pool. The Consumer Product Safety Commission reports that more than 200,000 children are injured annually on playgrounds.
You might consider increasing your liability coverage – that protects you in the event that someone is injured while on your property – with an umbrella policy.
Becoming new parents is a confusing & chaotic time. You are focusing on diaper changes, sleep, feeding schedules, and again sleeping (I mentioned it twice because of the importance), the last thing most new parents are thinking about is the insurance needs or changes to coverage required. But when things settle down or if you have time in advance, give it some thought.
Two additional thoughts:
- plan in advance during the last trimester you can make many of the appropriate changes, or
- work with a broker or agent, notify them and let someone else help you – and get some sleep.
If you have questions or are confused about your insurance coverage, contact your broker, agent or state insurance department.
Please comment below if you have any questions or comments.