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Life insurance for new parents

When you become a parent for the first time, protecting your little one and making sure you do everything you can to make sure their future is secure becomes a 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.

When you become a parent for the first time, protecting your little one and making sure you do everything you can to make sure their future is secure becomes a 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.

Kamran Altaf
From the Life team
4
minute read
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Posted 7 OCTOBER 2020

Why life insurance is important for new parents

Not being a part of your child’s future is something, as a parent, you never want to imagine. Yet it’s a worry that creeps up on us all from time to time.

Having a financial safety net in place can offer some reassurance, allowing you to enjoy your new family life without the niggling worry of ‘what if something happens to me?’

Life insurance can help provide that safety net, giving you the peace of mind that your family will 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 new-born 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 give you a rough idea, it’s often recommended that the pay-out amount 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 as a 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.

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. Once you pass away, 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 policies?

If you’re a couple, a joint policy might work out cheaper than two single policies. The biggest drawback though, 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 pass away first.

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 cost 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.

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