Becoming a new parent can be both an extremely exciting and stressful period in life with many late nights and very little time to manage the day-to-day life admin and financial matters.
Life insurance is unlikely to be the first thing that crosses your mind after having a child but it might still be something very important for your family to consider. Raising children is expensive and in the event that you or your partner were to die while you are still young – besides the emotional impact – life could become financially very difficult for your children and family.
Read on to learn why life insurance for new parents can be so important and how you can get the best life insurance deal for your family.
It may not seem like a top priority when having a child but having life insurance might be one of the ways to support you being able to financially take care of your family.
When children are young they need a lot of care and attention, which often results in a lot of regular costs. It is during these times that having someone to look after the children at home and having a job and a regular income are so vital.
If you are raising a child with your partner you may alternate working and staying at home between the two of you, or perhaps one of you will work and the other will stay at home. Either way, the income is often important for helping to pay for the everyday costs that come with looking after a child, and the care at home is just as significant in ensuring the child is always looked after.
If either of you were to die, then practically speaking, it would take its toll on the surviving family. The death of the main earner could put more strain on the partner looking after the child at home. They might need to start working and need extra money to hire a nanny, and if the carer were to die, then the main earner might need to work less or quit their job to be at home. Having children can be very expensive and life insurance is one way to have a safety net in place.
There are several costs that might need covering in the event of a child’s parent or guardian dying. It may not be something you would want to think about but it’s important to have a back up should the worst happen to you or your partner.
• Mortgage or rent: If you have mortgage repayment obligations for the next few years and your salary or salaries combined were helping to pay that off, then the death of a partner could put that at risk. Amidst the emotional struggle of facing the loss of a loved one, it can be especially hard to then deal with the administration of moving home. Having adequate cover in place would mean being able to keep your home and cover the costs.
• Debts: It may be obvious but many of your loans and credit card bills will not go away just because someone has died. They still need to be paid and it can be a dreadful experience for a loved one to have to work extra to cover those bills when they also need to look after the children at home.
• Childcare costs: It is not just the main earner’s income that would be missed after death, but also the responsibilities of the main carer at home. A death might force the main earner to quit work or to pay more for extra childcare making it harder to keep up with the everyday spending.
• School costs: Tuition fees, uniform, books and other education costs are all going to come up every now and again. It’s worth thinking about how long you would need to work in order to save up enough money to send your child or children to university. If that’s a priority then you could get a life insurance policy where the payout would cover this cost should you die during those years of work. You could also arrange for a payout to pay a regular income into a trust fund or savings account for your children.
• Everyday costs: Simple things like clothes, nappies, food, gas and electricity bills, and various other general costs still need to be covered after the death of a loved one.
If you are unsure about taking out life insurance, then either way it might be worth creating a budget of all your costs and seeing how much it would take to cover all of them for the next few years should you or your partner die. If you do want to take out life insurance then this will give you a better idea of how much insurance to buy.
Instead of taking out two separate life insurance policies, a joint policy can usually work out slightly cheaper.
However, there is only one payout and one claim, so if both of you were to die then your beneficiaries would only receive one payout.
With two single policies you would be covered twice as much, so it’s important to weigh up just how important each parent is in earning money and caring for the child. Two single policies may only be slightly more expensive than a joint policy, so it’s definitely worth comparing both against your needs when shopping around for life insurance. Read our guide on joint and separate life insurance to find out more about your options.
There are several types of life insurance policies available. Ultimately it depends on your circumstances and how much you are willing to spend.
If you’re a new parent looking for life insurance and you have a mortgage that needs to be covered then you may want to go for a decreasing term life insurance policy. Decreasing term policies are designed to cover a payment that decreases over time, like a mortgage. With time your monthly costs fall but so does your payout. However, the payout may not be large enough to cover other costs – it may only be enough to get the mortgage paid off.
With life insurance for new parents it’s important to get enough of a payout to cover the costs that have to be taken care of and a little left over to help the children get by over the next few years. A level term policy pays the same agreed amount and lasts for the length of time you choose. So if you thought that it was crucial to protect your family for the next 20 years, then you would take a policy lasting 20 years.