Between 2012 and 2020, the cost of raising a child to the age of 18 has risen 5.5% for families with two parents and almost 20% for lone parent families. It now costs between £152,747 and £185,413 to look after a child before you're able to cut the apron strings. It follows that during a child's formative years, the cost of putting a roof over their head can become a real concern. But perhaps more worrying is what could happen if you weren't around to foot the bill.
Welcoming a child into the world can be both exciting and stressful. Between cooing family and friends, sleep deprivation and endless nappy changes, it's understandable that admin tasks like sorting out life insurance may be lower down your priority list.
However, if the unthinkable were to happen, the financial implications of losing a parent could make the lives of the young family you leave behind extremely difficult. Planning for the future with life insurance could provide your loved ones with financial security should the worst happen.
As a new parent, there are several different types of life insurance policies you can choose from. To help you decide which is best for your family's individual circumstances, here is an overview of the different polices available and the protection they offer:
Level term life insurance - a type of insurance that will pay out an agreed fixed sum if you die within the policy term which is chosen by you. This means you can tailor the length of the policy and amount of cover to meet your needs. The factors likely to determine the most appropriate term for your policy and the amount of cover needed will include the age of any children, your net income and any debt you may have. Generally speaking, the greater the amount of cover you choose and the longer the term, the higher your premiums will be.
Find out more about level term insurance.
Mortgage protection life insurance - also known as 'decreasing term life insurance', this type of policy is designed to pay off your mortgage in the event of your death. If you have a repayment mortgage, the amount you owe decreases over time. Similarly, the cover provided by mortgage protection insurance decreases roughly in line with a repayment mortgage. As such, this type of insurance is usually cheaper than level term insurance. This is because the payout is likely to be less than a level term policy should you die, particularly during the later years of the term.
Find out more about mortgage protection life insurance.
Critical illness cover - a type of insurance that you can combine with level term life insurance or mortgage protection life insurance. Critical illness cover provides protection in the form of a lump sum payout if you are diagnosed with one of the provider's specified illnesses. The likelihood of this is generally much greater than the likelihood of an early death and as such, adding critical illness cover to either your level term life insurance or mortgage protection life insurance will increase your premiums although it will provide you with a greater level of cover.
Find out more about critical illness cover.
Taking out a joint policy (covering both parents) may work out cheaper than buying two separate policies. However, with a joint life policy, there can only be one claim per policy. Therefore, if both you and your partner were to die, your dependants (children) would only receive one payout.
On the other hand, purchasing a separate life insurance policy for each parent offers protection for both parents - and in some cases, doesn't cost that much more than buying one joint policy. For this reason, buying two separate polices may be something worth considering as you explore your life insurance options.
If you are currently in a situation where one parent works and the other stays at home for childcare purposes, you may be tempted to only purchase cover for the main breadwinner. However, it is important to consider that if the carer were to die, it is likely the breadwinner would be required to become more of a stay-at-home parent and work less, or at the very least, need to arrange more permanent childcare to allow the breadwinner to continue to work full time. Under these circumstances, ensuring the carer is protected, whether through a joint life policy or as a separate policy could be just as important as covering the main breadwinner.
Other than the health of the individual, when buying life insurance, the two main factors that determine the premium charged are the amount of cover (total payout in the event of death) and the length of the policy.
In relation to the amount of cover, you'll need to think about how much money your family would require to pay for their living expenses. Should one person die, the cost of household bills, food for the family, fuel etc are unlikely to change a huge amount. On top of this, ensuring there are sufficient funds to allow your family to 'live' (continue going on holiday etc) as opposed to simply 'survive' will determine the appropriate amount.
When it comes to the length of the policy, you'll need to think about how long your children will depend on you financially. For example, if you have just had your first child, you may wish to consider protection until the end of their education. If you have more than one child or have plans for more children, you may want to consider a longer term.
The greater the level of cover and the longer the length of policy you require, the higher your monthly premiums will be. There are no rules around levels of cover, so even if you're not in a position to secure your 'ideal' level of cover initially, it is worth considering some cover because as a new parent, the need to protect your new arrival is immediate.
At Compare Cover, we're dedicated to helping people protect their world for less. As a specialist online comparison service, we are committed to helping you find life insurance that will provide you and your family with peace of mind at the right price.
If you're ready, compare life insurance quotes now.
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