Since 2003, the cost of raising a child to the age of 21 has increased by 63% in the UK. This means it now costs close to a quarter of a million pounds 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 your world feels like a cocktail mixed with equal parts of excitement and stress. Between cooing family and friends, sleep deprivation and a lot of nappy changes, it's understandable if admin tasks such as sorting out life insurance are the last thing on your mind.
However, if the unthinkable were to happen, the financial implications of losing a parent is likely to make life for the young family you leave behind very difficult. Life Insurance can provide the support needed to plan for the future with financial security, including helping with the emotional impact of loss through bereavement counselling.
As a new parent, there are several different types of life insurance policies you can choose from. To help you assess your choices, here is an overview of several different polices and the protection they offer:
Level term life insurance - a type of insurance that will pay out an agreed fixed sum and lasts for a length of time you choose. This means you can select the length of policy and the payout amount you will need to match your exact requirements. The types of things that are likely to determine the most appropriate term of your policy and amount of cover needed will be the age of your child or children, your net earnings, any debts etc. Remember in general, the greater the cover and the longer the term, the more the premium for your cover will be as the risk is greater.
For more information about level term insurance, click here.
Mortgage protection life insurance - also known as 'decreasing term life insurance', this is a type of policy that 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. Hence, the cover provided by mortgage protection insurance decreases in line with your mortgage. As such, this type of insurance is usually cheaper than level term insurance as the payout is likely to be less than a level term policy were you to die, particularly during the later years of the term.
For more information about mortgage protection life insurance, click here.
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 a specific illness. 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 significantly although clearly will give greater cover.
For more information about critical illness cover, click here.
Taking out a joint policy (covering both parents) may work out cheaper than buying two separate policies. However, it should be understood that 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 many cases, doesn't cost that much more than buying one joint policy. For this reason, buying two separate polices is 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 might be tempted to just cover whichever parent is the main breadwinner. However it is important to consider that if the carer were to die, it is highly likely that 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 child care 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 as important as covering the 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 protect their living expenses. Should one person die, the cost of food, gas, electric, rates, fuel, insurance are all likely to change very little. On top of this, ensuring there are sufficient funds to allow your family to 'live' (continue holidays etc) as opposed to simply 'survive' will determine the amount that is appropriate.
In relation 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 education but you may equally have plans for other children and therefore consider a longer term.
The greater the level of cover and the length of the policy you require, the higher the cost your monthly premiums will be. But remember, there are no rules for what is the right amount, so even if you're not in a position to secure the '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 ensuring you can find life insurance that will provide peace of mind to your family at the right price.
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