Do You Need More Life Insurance if You Have Another Baby?

Life circumstances can sometimes necessitate buying more life insurance coverage. Having a baby is a major lifestyle change, so does that mean it's a good idea to buy more insurance when a new bundle of joy is born?

The answer to this question can depend on a policyholder's specific situation. Here's what new parents need to know to make the choice.

Is buying more life insurance important after having a child?

The purpose of life insurance is to make sure loved ones depending on the policyholder are not left financially devastated by an untimely death. Generally, a person should use the DIME formula to decide how much insurance coverage to buy. This stands for:

• Debt: The life insurance policy should be large enough to repay outstanding debts the deceased owed.
• Income: The policy should provide the money to replace income the deceased was earning for as long as it is needed.
• Mortgage: The coverage should provide enough money to repay the mortgage for a family home.
• Education: The policy should ensure there's plenty of funds to pay for the education of minor children.

Adding a new baby means adding additional education costs. The average cost of college is already $36,436 a year per student, and it's rising rapidly, so it will be even more expensive by the time a new baby reaches college age. Educational costs don't just start in college, either. There's preschool to consider and private school if that's desired, and extracurricular expenses as well.

Children also require a lot more spending, even beyond educational expenses. The average cost to raise a child was estimated at $310,605 in 2022. The birth of a new child adds a lot of extra expenses to a family's budget. It could also mean the family needs a new home to accommodate a growing family or that the family will become even more dependent on the services of a stay-at-home parent or the income of a parent who will serve as the primary breadwinner.

For all of these reasons, it may make sense to buy additional life insurance coverage when a new baby is born. However, a lot depends on the coverage already in place. Since it's cheaper to buy coverage at a young age and many people look toward the future when purchasing a policy, some people may have purchased plenty of coverage for multiple kids at the time they originally put their insurance in place.

To decide if more insurance is necessary, it's best to simply work through the DIME formula again. If the new baby changes the calculations so more income or services are required, then buying additional coverage is a good idea.

How to get more life insurance coverage

A policyholder who decides to get more life insurance can't necessarily just call up their insurer and ask to raise their death benefit amount. That's because their premiums were priced based on their age and desired coverage at the time they bought the policy and they can't just change things years later.

Now, some insurers do offer the chance to buy a predetermined amount of initial coverage without going through the full underwriting process again (that's the process the insurer uses to assess risk). This results in a premium increase, though.

If a policy's death benefit can't be increased enough, it may be possible to buy an additional life insurance policy to offer more coverage. However, this would involve going through underwriting, so pre-existing conditions could be disqualifying or premiums could be more expensive since the policyholder would be older.

The best thing to do is to make sure to buy a sufficient amount of coverage from the start so you're ready for future life events. If it's too late for that, then be sure to do the math on how much coverage is needed after a baby joins the family and to explore options for adding additional protection if it's needed to provide for the new bundle of joy.