Life will never be the same again
When you have your first child and become a parent, life is no longer just about you anymore.
You take on the thrilling, if somewhat scary, responsibility of another person. One who is completely reliant on you both emotionally and financially.
As you experience the unrivalled joy of welcoming a baby into the world, your mind will naturally turn to the future and how you can provide for them over the next 18, even 21 years.
Securing life insurance is a cost-effective way of safeguarding the long-term financial future of your child.
Why do parents need life insurance?
Although we believe virtually everyone would benefit from having life insurance, even if you have no dependants, it definitely takes on a greater significance when you start a family.
What if one of you was no longer around to provide for your loved ones?
- Could your partner afford the monthly mortgage repayments or rent?
- Could they afford on-going living expenses, household bills and council tax?
- If they had to return to work, who would look after the children?
- If they had to use childcare, could they afford expensive childcare fees?
- Could they afford to absorb your personal debt?
These are all really uncomfortable questions to answer. When you only had to worry about yourself, you were probably more likely to put these questions to the back of your mind.
However, now you are a parent you have someone else to protect. From our experience, this is often the time when people consider taking out life insurance for the first time.
A life insurance policy can provide a reassuring safety net for your family, as well as peace of mind for you, by covering all these expenses in your absence.
Get the right life insurance for youIn reality, no two family scenarios are the same and what is important is to get the right cover to meet your unique needs.
We all have different budgets, a different number of dependants, different mortgage debt, are of different age, are married, single or divorced etc.
Unfortunately, life insurance is not quite as simple as buying car or home insurance. However, if you take the time to consider your requirements, you can get on with living your life, safe in the knowledge your loved ones are fully provisioned for.
Things a parent should consider in order to secure comprehensive life cover include:
1 – How much cover do you need?
A key question to ask yourself is, how much cover do I need if the worst were to happen?
Enough just to pay off the repayment mortgage on the family home? In which case, a decreasing term policy aligned with your mortgage term may be sufficient.
Enough to pay off the mortgage, as well as leave a nice inheritance lump sum to cover future family living costs? In which case, a level term policy may suffice.
According to research from The Money Charity, the average cost of raising a child, from birth until the age of 21, is £30.23 a day. Which equates to £11,034 a year, or a staggering £231,713 over 21 years – (source: http://themoneycharity.org.uk).
If you were no longer around, who would look after the children? Could you afford expensive childcare costs?
The Money Advice Service reports that the average cost of full-time UK childcare in 2017 was £223.36 a week and £277.84 per week for those in London.
That’s £11,615 or £14,448 a year, for 1 child under 2 years – (source: https://www.moneyadviceservice.org.uk).
2 – Debts
As well as large debts, most notably a mortgage, you will also need to think about how much personal debt you have.
You need to make sure your life insurance policy covers such debts, so not to burden your family if you were no longer around.
Common debts for young parents include:
- Credit cards
- Student loan
- Car finance
- Personal loans.
3 – How long do you need life insurance cover for?
If you are a new parent, time and money is probably limited, so you will want to pay as little as possible on your monthly premium.
It is a case of making sure you are not over-protected and paying unnecessarily high premiums, but equally making sure you are not under-protected and leaving your family vulnerable.
How long is left on your mortgage term? 20 years, 25 years? It is generally a very good idea to make sure this debt is covered by your life insurance.
How old are your children? If you have a new-born you might want to make sure your policy term protects your dependants until they have passed university age and are financially independent.
4 – Education
If you want your child to go to a private school you may want to provision for this in your policy.
Even if you plan on sending your children to state school there are always on-going costs during these 11 years of schooling.
Following the end of secondary school, your child/children may undertake a further 2 years at 6th form college and then perhaps university?
Common costs parents incur through their child’s education include:
- Private school fees
- University costs and tuition fees
- School trips
- Uniform and sports kit
- Equipment and books.
5 – On-going family living costs
Lastly, you will need to give consideration to those unavoidable on-going family living costs.
If you are a young parent you might want to consider taking out family income benefit, which pays out a monthly tax-free income, as opposed to a lump sum pay out. This can make long-term family budgeting easier.
Common living costs include:
- Utility bills (gas, electricity, water)
- Council tax
- Food and drink
- Leisure activities
- Car (maintenance, insurance, tax, fuel)
- Household maintenance (electrics, plumbing, roofing).
The value of a stay-at-home parent (Infographic 2018)You might think that you only need to protect the family ‘breadwinner’ and that a stay-at-home parent does not require life insurance?
We believe it is equally as important for a stay-at-home mum or dad to also have life cover in place.
Think for a minute about all the unpaid jobs they perform: teacher, taxi, cook, cleaner, childminder. Then think about the financial and practical implications if they were no longer around.
Research by Bidvine suggests the monetary value of a stay-at-home parent is £80,000 a year. We wrote a blog post on the true value of a stay-at-home parent earlier this year »
Joint or 2 single policies?You may think that taking out a joint policy is the best approach, as they are generally cheaper, compared to 2 single policies.
However, it is important to know that joint policies will only pay out once, normally on the first death. Whereas 2 single policies mean 2 separate pay outs and thus much greater financial protection.
You also might think that you only require cover to protect the main breadwinner of the family. However, a stay-at-home parent is extremely valuable to the family dynamic, not just emotionally, but also financially.
Critical illness & terminal illness coverStatistics show that we are much more likely to suffer a critical illness during our working lives than to die. As a result, you may want to think about adding a critical illness element to your life insurance policy.
Critical illness provides extra protection, paying out if you die, or paying out early if you become critically ill with a condition covered by your policy. Therefore, if you are no longer able to work you will still be able to provide for your loved ones.
Most life insurance policies now also come with terminal illness cover as standard. Whereas critical illness protects you if you suffer from a serious condition that stops you from working, terminal illness cover protects you if you suffer an illness which is likely to result in your death within 12 months.
Benefiting from your policy early could help fund things like medical expenses or necessary adaptations to the home. At a time when your family is struggling emotionally, is it comforting to know they will not have to worry about their finances.
Write your life insurance policy in trustIn life insurance terms, a trust is simply a legal arrangement designed to ensure that the pay out from your policy is distributed as you intended.
The life insurance policy is looked after by a trustee/s until the time comes for the benefit (or pay out) to be released to your beneficiaries. Because the policy has been written in trust, the proceeds do not form part of your legal estate.
The key benefits of writing your policy into trust are:
- Avoid or minimise 40% inheritance tax (over the £325,000 threshold)
- Avoid the lengthy probate process (for a faster pay out)
- Have more control over who gets the funds and when.
Reassured offer a free trust service to all customers. We can answer any questions you may have and help with the application process, making sure your children benefit fully from your investment.
Saving money on life insuranceWhen you have a baby not only does this have an impact on your time, but also on your level of disposable income. Raising a child in the UK is not cheap.
Most of you will want to make sure your monthly premiums are as low as possible, whilst still providing sufficient protection.
Tips on how you could save money on your life insurance premium:
- Take out life insurance when you are young, (ideally 20s or early 30s)
- Make sure your policy term is not unnecessarily long
- Live a healthier lifestyle, (lose weight, stop smoking, exercise regularly)
- Don’t overprotect yourself/take out more cover than you need
- Compare multiple quotes yourself or use a broker, insurers quotes can vary.
Why should parents use Reassured for their life insurance?
- If you have young children, time is precious. Let us save you time and money
- We help 1000’s of customers secure comprehensive life cover every month
- Life insurance is what we do, (it is all we do), day in and day out
- We will search the market on your behalf, finding the most competitive quotes available
- 15,500 cannot be wrong! We have an ‘Excellent’ average Trustpilot rating – 9.6/10
- We are completely independent, impartial and never charge a fee
- There is no obligation for you to take out the cover we find
- We are a non-advised brokerage – we simply listen to your unique circumstances and find the best quotes.