Life insurance for new parents
When you become a parent for the first time, protecting your little one and securing their future becomes top priority.
It’s no wonder then that, after the arrival of a baby, many new parents take out life insurance for the first time. Find out why.
When you become a parent for the first time, protecting your little one and securing their future becomes top priority.
It’s no wonder then that, after the arrival of a baby, many new parents take out life insurance for the first time. Find out why.
Why life insurance is important for new parents
Not being a part of your child’s future is something you never want to imagine. Yet it’s a worry that creeps up on us all from time to time.
The grim reality is that every 22 minutes in the UK, a parent dies, leaving dependent children, according to the Childhood Bereavement Network. In other words, 111 children lose their mother or father every day.
Parents depend on each other in ways that go beyond earning a salary and paying the bills. In many cases, the surviving parent may have to leave their full-time job to care for the kids. Or if they continue working, the extra childcare needed would become very expensive. Having a financial safety net in place can at least offer some reassurance, allowing you to enjoy your new family life without the niggling worry of ‘what if something happens to me?’
Life insurance provides that safety net, giving you the peace of mind that your nearest and dearest would be protected financially if you weren’t around anymore.
Bringing up baby costs
How can someone so tiny need so much stuff? It’s incredible the amount of gear a newborn baby needs, and it doesn’t stop there. When baby comes along, it’s time to consider a bigger car, a bigger house, a bigger mortgage…
Let’s face it, bringing up a child to the age of 18 can cost a lot of money. Depending on what statistics you read, you could be looking at well over the £100,000 mark.
How much life insurance cover do I need?
There’s no one-size-fits-all answer. It’s something you’ve got to sit down and work out. It’s a good idea to factor in your outgoings now and in the future, so if the worst happened, these costs can be covered.
A lot will depend on your financial situation. Think about:
- Your mortgage, any loans and other large outstanding debts that could be a burden if the main breadwinner died.
- Childcare costs if the main carer died.
- Loss of earnings if the bereaved partner had to give up work to care for the children.
- Monthly outgoings like utility bills and other costs of running a home.
- Educational costs – even if you’re not thinking about private education, there could be school uniforms, school trips, extra-curricular activities and maybe uni fees further down the line to consider.
- All the usual costs involved with bringing up a child: clothes, food, toys, activities, days out, holidays, birthdays and Christmases, to name a few.
To give you a rough idea, it’s often recommended that the target life-insurance pay-out should be at least 10 times your annual salary.
If your outgoings can be covered, and you’d prefer to leave a lump sum for your child to access when they’re older, you might want to consider setting up your life insurance in trust.
What’s the best life insurance policy for parents?
First, you’ll need to decide which type of life insurance cover you want. There are two main ones to consider:
Level term life insurance
This is a fixed policy for a set period of time – the ’term’. You choose the pay-out amount and the length of the policy term. Your family will get a lump sum for exactly the same amount, whether it’s paid out at the beginning or towards the end of the policy term.
The main benefit of this type of policy is that you know exactly how much your family will get if you died.
But when the policy term finishes, the cover will stop. That means it won’t pay out if your death happens after the term has ended. Also, usually there’s no cash-in value at any time during the term of the policy and if you stop paying, the cover will stop.
Decreasing term life insurance
This can work out cheaper than a level-term policy because the value of the policy decreases over time. So, if it’s cashed-in near the start of the policy, the pay-out will be much larger than if it’s cashed-in towards the end of the policy term.
Sometimes known as Mortgage life insurance, it’s often used to cover repayments for debts such as a mortgage or a loan which normally decrease over time.
Top tipIt may be the last thing you want to think about, but it’s important to make a will as a new parent. If you die without a will, your estate will be subject to intestacy law. This means the courts decide who will get what. Writing a will also allows you to appoint guardians for your children if you or your partner should die. If you don’t have a will, the local authority or courts could decide who should look after your children. |
How much does life insurance cost?
The cost of a life insurance premium depends very much on your own personal circumstances – your lifestyle, how old you are, your health and the type of policy you’re after.
We know that as new parents, your costs of living will likely have risen. That’s why we’re here to help you find a great level of cover at the right price. Check out the latest life-insurance deals and give yourself the peace of mind that your family’s taken care of.
Do I need life insurance if I’m not the main breadwinner?
If you’re a stay-at-home parent, life insurance is definitely worth considering. Think about how your partner would cope with the costs of bringing up baby if you were no longer there. They might need to organise full-time childcare, or even cut back on their working hours to stay at home themselves.
Will life insurance cost more while I’m pregnant?
Taking out a life-insurance policy when you’re pregnant shouldn’t cost more than it normally would.
It’s most likely that you’ve changed some of your lifestyle habits during pregnancy, like giving up alcohol and eating more healthily. Just make sure you’re honest when buying a policy. Your insurance provider will want to know about your lifestyle habits, pre-pregnancy. For example, if you gave up smoking in the months before you became pregnant, you’ll still be considered a ‘smoker’ and a higher risk for insurance purposes. This, not the fact that you’re pregnant, could mean your premium is more expensive.
Frequently asked questions
What’s the difference between life insurance and life assurance?
Life insurance will cover you for a set term. Life assurance, also known as whole of life insurance, is just that - it covers you for your whole life. When you die, the policy will end, and your beneficiaries – the people you’ve chosen to get the pay-out – will get a lump sum.
Joint or single life insurance policies – which is best?
If you’re a couple, a joint life insurance policy might work out cheaper than two single policies. The biggest drawback is that it will only pay out once. If your partner dies, you’ll receive a lump sum, then the policy will be cancelled. The same happens if you die first.
If you’re a single parent, you may want to set up a single policy to ensure that your child is financially protected if anything should happen to you. This could be particularly important if you’re the sole carer and your child is completely reliant on you financially. If you’ve appointed a guardian, you could name them as a beneficiary. A life insurance pay-out could help with the costs of bringing up your child if you were no longer there.
What other types of insurance might I need as a new parent?
As well as life insurance, there are other types of financial protection you might want to consider for your new family:
Critical illness cover – this can be added to your life insurance or bought as a standalone policy. It offers financial protection in the form of a one-off payment if you were to become seriously ill or injured.
Income protection insurance – replaces your regular income if you are sick or injured and unable to work. Depending on the policy, you could also cover periods of unemployment, for example, if you’re made redundant.
Family health insurance – while you and your family may be entitled to NHS care, a family health insurance policy could cover the costs of private treatment with the added benefit of shorter waiting times.
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