When getting ready for a new baby, there's lots to think about: what kind of diapers to buy, what color to paint the nursery, what to name the baby?
But often parents-to-be don't think about how they need to financially or legally prepare.
What To Do Before The Baby Is Born
Life Insurance: Tara Siegel Bernard, personal finance reporter for the New York Times, encourages expectant parents, especially mothers, to buy life insurance as soon as possible.
"Women should be buying the policies [for themselves] perhaps even before they get pregnant or at least early in the pregnancy," Siegel Bernard says.
She said that if complications arise during pregnancy, it could be tougher for moms to get insurance.
Siegel Bernard also recommends term insurance instead of whole life. Term insurance is cheaper than whole life and pays out the face amount of the policy, whereas whole life is a combination of insurance and an investment vehicle.
"The cost of term insurance is pretty low, and the younger you are, the lower it is," she says.
Health Insurance: "You only have about 30 days to figure out whose policy you want to add the child to — 30 days after the birth. So that's something you want to evaluate well ahead of time, and not when you're exhausted and sleep deprived since you only have that short window to add the baby," says Siegel Bernard.
Disability: "A lot of the financial planners that I interviewed had said that [disability insurance] is not something that people think about, it tends to be expensive," she says. "So [financial planners] said to start by looking at your employer's policy, if you're lucky enough to work for an employer who offers it. And then if that doesn't offer enough coverage, you might look to the open market and see what's available out there."
What To Do After The Baby Arrives
Put Away Savings: "A lot of financial advisers that I spoke to said people become preoccupied with starting a 529 college savings plan... but they said hold off on that if you don't have money set aside for a rainy day, you might want to forgo or at least wait on the 529," says Siegel Bernard.
"If you put money in a 529, as long as you use the money for higher education you don't have to pay taxes on capital gains. You might also get a state tax deduction. Thirty-three states plus Washington, D.C., offer income tax deductions at the state level," she says.
Decide Guardianship Of Your Child: "It's a decision that many new parents just tend to avoid," says Siegel Bernard.
Though morbid, Siegel Bernard say it's one of the most important decisions new parents can make. But it's not a permanent choice. She suggests if new parents are feeling overwhelmed, they can choose the grandparents, and re-evaluate as time goes one. Siegel Bernard says choosing an outside person to handle finances can provide a system of checks and balances if the parents pass away.
Assign A Power of Attorney And Medical Directive: "Somebody else that can handle your decisions medical, financial or otherwise if you become incapacitated even for a little while," she said.
- Tara Siegel Bernard, personal finance reporter for the New York Times
This segment aired on April 3, 2013.