You’ve just created another human to raise and to nourish and, if you’re like many new moms, you may be feeling and thinking, “what next?"
If you’re a first-time mom, this may all be new to you, but it’s definitely brand new for your baby. As mothers, our instincts naturally kick in and the first thing we want to do is protect our babies. We don’t trust just anyone with them, and it might worry us to consider what will happen in a worst-case scenario. Likewise, we may worry if we can provide the best foundation for them, perhaps hoping to furnish them with a better upbringing than we may have had ourselves.
One of the best ways to protect and provide for your little one is by creating a solid financial footing from the beginning. A great way to achieve this is through life insurance, a simple yet effective means to produce generational wealth for our babies.
There are two types of life insurance that you may be familiar with: permanent life insurance (also known as whole life insurance), and term life insurance, which only covers the beneficiary for a set term. While both types pay benefits to the named beneficiary(-ies) if the person insured passes away, permanent coverage – which is the more expensive of the two – provides greater flexibility than term coverage because it yields an additional benefit that can be used to secure your child’s financial future: cash value.
But, what exactly does that mean?
Basically, a permanent life insurance policy can act as an investment vehicle for the life insured (in this case your newborn), for life. Therefore, purchasing a cash value life insurance policy is a way that you could pay for your child’s education and other financially-fueled goals that you might not have considered yet. And, it’s never too soon to start planning for your child’s education – in fact, the earlier you start, the less you’ll pay out.
Although your newborn is just a baby now, in what may seem like no time at all, your little one will be all grown up. Once your child reaches adulthood, you can transfer the ownership of the policy to them. They can then borrow against the policy or withdraw the cash value that’s been building up over the years since you first bought it.
Accumulating the cash value of a permanent life insurance policy now can be a big help later on with things like:
- Paying for their education
- Helping them buy their first car
- Putting together a down payment for their first home
- Funding a gap year before college or university so they can travel the world
- Helping them start a business
And, if they don’t end up using their policy’s cash value for any of those goals, they can use it later in life to:
- Supplement their retirement income
- Help pay for health care expenses that aren’t covered by health insurance
- Cover their policy premiums
- Help their own children with their financial goals
Although you can buy a permanent life insurance policy for your children at any time, the sooner you invest in your child’s future, the better. A newborn’s permanent life insurance policy can be as low as $59.00 per month or $662.00 per year, on average, which is not something to sit on. When you’re ready to get started, there are several things you should ask yourself:
- What financial goals can life insurance help my child with?
- How much coverage should I buy for my newborn, and what will the premium be?
- How much will my newborn’s beneficiary have left once they’ve reached the desired withdrawal age?
At the end of the day, there are two significant advantages when you purchase life insurance and get coverage for your newborn from the get-go:
1. Coverage may be less expensive because they are so young
2. Your child has a longer window to accumulate the cash value
Ultimately, the sooner your child is covered by a permanent life insurance policy, the longer the cash value component has to grow until they’re ready to use it – conversely, the longer you wait, the higher the premium and the shorter the time frame to build up the cash value. From a savings perspective, time is on their side and it’s the most powerful tool your child has. That’s why there may be no better time to purchase permanent life insurance for your child than when your baby has just made their debut in the world.