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Life insurance: a guide for new parents
Having a child is a hugely exciting – and busy – time for parents. It’s also a period in your life when you will need to consider life insurance cover now that you’ve got the responsibility of caring for a new family member.
The arrival of a baby may be the first time a couple buys life insurance. And the addition of a second or third child may mean existing arrangements are now insufficient.
Why do parents need life insurance?
Put simply, life insurance is there to ensure your loved ones are financially protected in the event of your death, or serious disablement. Parents will need to weigh up how much income they earn and what their outgoings would be if one of them were no longer there to contribute.
What are the main costs that new parents face?
Mortgage: This is the biggest expense for most young families. Some householders will have arranged some form of short term insurance, such as mortgage payment protection insurance or accident sickness & unemployment cover, when a property was bought, however long term income protection insurance is almost always preferable to these types of cover. The arrival of a new son or daughter is an ideal time to reassess whether your existing cover is enough to pay for the monthly mortgage bill.
Loans/savings: You may have other significant debts, such as a loan taken out to buy a car or a negative credit card balance. Or maybe you are saving for your children’s future and you would want to keep putting money aside. Weigh these costs up when deciding how much you would want a life insurance policy to pay out.
Childcare costs: The arrival of a new child will cost money: there’s extra food to buy, nappies, clothes, and your heating bill will probably increase. Then there’s childcare – would a surviving parent be able to continue working and pay for a nanny, childminder or nursery place while they went out to work? And think also about school costs. Some families pay school fees, while almost all will need life insurance cover for education-related expenses such as uniforms, school trips and possibly university tuition fees and living costs.
How much life insurance cover does a family need?
Generally, insurers advise a family that the best life insurance policies provide cover for ten times their annual income. That’s a rough figure and families with young children may choose to cover a larger amount while parents with teenagers may be happy to have less protection.
If you are your family’s main breadwinner you should cover the loss of future earnings if you were to die, or were unable to work. If you are not the main wage earner you should consider the impact your loss would have on household outgoings – especially in terms of childcare costs.
What affects how much a life insurance policy costs?
The cost of a monthly life insurance premium is affected by three major factors. First is the level of cover. The more you would want to be paid out, the greater the cost. Second is the length of the term: a life insurance policy for 15 years will cost less than one with a 25-year lifespan. And finally, there’s your level of risk. Smokers, or people with serious medical conditions, will pose a greater risk to insurers so they are charged more.
