11 May Should I buy life insurance for my new baby?

Q. I am pregnant with my first baby and I keep getting ads for life insurance for my baby. Are these worth it?
— Mom-to-be

A. Congratulations on your growing family.

This is always an interesting question.

When it comes to insurance, ask yourself who is dependent on the insured’s income because that’s what insurance is usually for — protection against lost income — said Taylor Thomas, a certified financial planner with NCM Capital Management in Ramsey.

“Life insurance is usually not needed if there is no income to protect, as there wouldn’t be with a baby,” he said. “We do not see insurance as an investment option given the low expected returns that a beneficiary will receive if the insured lives close to their life expectancy.”

Taylor said you may be offered some “pros” to buying this type of policy, including that buying for a newborn allows access to low rates as insurance premiums increase as people get older, that it may guarantee access down the road to additional coverage without requiring a medical exam, that the policy may act as a savings vehicle if it has a cash value component and it will provide for funeral expenses in the worst-case scenario.

However, he said, he believes that in most cases, the cons outweigh the pros.

Those include that the policy benefits may never be used, insurance policies typically provide a low rate of return if the insured lives close to their life expectancy, insurance policies are a long-term commitment for which cash flow is required to cover premiums and that a person can access life insurance coverage at low rates even in their 20s and 30s when it is more likely that they may have an income to protect, he said.

And, he said, the funds used to pay for insurance premiums might be better used on other savings strategies like 529s or custodial investment accounts.

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This story was originally published on May 11, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.