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Easy Money: The Best Life Insurance Policy

With feedings, changings, and sneaking in shut-eye, preparing for "what-ifs" is probably low on your family's to-do list. Here's how to simplify finding life insurance:

When to get it

Apply early in your pregnancy or shortly after delivering. Most companies won't consider you within 60 days of your due date because of potential risks-your first postpartum checkup is usually a good time to qualify. In many cases, the insurance company will send someone to your home to conduct a physical; after that, it often takes one to three months before your policy takes effect.

What's available

Term insurance pays a lump sum if the policyholder dies within a set period. Permanent (or whole) insurance pays what the policy has earned whenever the owner passes away.

Why you both need it

...if you work

Your partner wouldn't have your wages to help cover the costs of raising a child should something happen to you, and his taxes might also be higher because he couldn't file jointly. Plus, smaller savings could make paying off a mortgage and retiring hard for him. And employer- provided life insurance usually isn't enough, says Brian Ashe, spokesman for the Life and Health Insurance Foundation for Education and its former chairman.

...if you don't work

If you're the main childcare provider, your partner would have to pay for childcare or cut his work hours to do it himself if you weren't around. Either way, there would be less money available for the essentials.

How to choose

"New moms may not have the time or stamina to make the complicated investment decision that permanent insurance requires," says MP Dunleavey, the Cost of Living columnist for The New York Times and mom of a 2-year-old. "I suggest getting level [the payment stays the same] term insurance for twenty years, so your child is covered until he can support himself. You can switch later." Compare different companies' costs online at a site like AccuQuote.com, which shows companies' ratings, but keep in mind that those quotes are for people in perfect health-your premiums may be higher.

How much you need

A sole breadwinner/stay-at-home mom needs eight to ten times her/her partner's annual salary. A working mom whose partner earns as much as her can buy a bit less. For a closer estimate, see the calculator at lifehappens.org.

 

Term
Pros: The payments are lower if your policy is "level" (about $360 per year for a healthy 30- year-old for $1 million and 20 years).
Cons: The benefits are a set amount -- they can't grow larger. If you survive through the period, you don't get a cent.

Permanent
Pros: The money you put into the policy gains value over time and can supplement your retirement plan. You can borrow money from it, just as you could from a 401(k).
Cons: The payments are higher (about $1,440 per year for $1 million) and you may earn more in a 401(k).

 

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