Thomas has it dead on for TLS and/or AES.
If you're working with a less modern algorithm or you're extra paranoid, both of the key refresh methods you mention have been tried at various points in time and they both have drawbacks:
data as seed to new key - this is the basis for some stream ciphers - for example see Cipher Feedback and Output Feedback modes commonly used with DES. The trick is - that the receiver needs to stay in sync with the sender. If there is a gap in the transmission, the transmission can quickly turn into gibberish if the wrong key is applied to the encrypted data.
wrap new key in old key - this one is rarely used, since if you are assuming the attacker (given time) has gotten your key, then you have to assume that he'll have captured all your cipher text and he will not have a problem getting the new key. Mostly, at that point, you've saved him the work of figuring out the new key.
A typical solution to this problem is to use a secondary key for transmitting the symmetric key. That's exactly what TLS does - it uses an asymmetric key to protect the distribution of the symmetric key. That adds extra burden - to get that transmission, the attacker must figure out the private key of the asymmetric pair used for the symmetric key transmission. There won't be much exposure here, as they only thing that may be encrypted is new session (symmetric) key pairs.
Another one - in systems which can't handle asymmetric keys, is to use a secondary key distribution key that is ONLY used for key distribution. This will have a shelf life, since that key will have exposure problems, too, but it mitigates the risk on some level.
Key distribution is one of the nastier problems of cryptography. No matter how you slice it, you have to get at least the first key out there in a somewhat painful fashion. Then you need a way to keep keys appropriately fresh, and you need a way to recover if a key is ever lost or compromised. The techniques for all that vary greatly depending on whether you are talking about asymmetric or symmetric cryptography, and some of the best systems mix the two for greatest potency.