Direct Line magazine

Life insurance for new parents

Updated on: 3 November 2022

smiling parents hold their new baby

This is a general description of life insurance and the products available. Please make sure the policy you choose suits your needs and circumstances.

It's fair to say, new parents have a lot going on. You have nine months to prepare for your new arrival, but somehow, once your baby’s here, you feel like you’ve done no prep at all.

Parenting opens up a whole new world of uncertainty, and it’s ok to feel overwhelmed. Life insurance is a good way to relieve yourself of the ‘what ifs’ and financial worries, should the worst happen and you or your partner dies.

It’s important that the policy you choose is right for you and suits your needs and circumstances. So, we’ve written a handy beginners guide to life insurance to help you decide if it’s right for you and your family.

What is life insurance?

Life insurance delivers a cash sum to your loved ones if you die during the term of your policy. You may find it an uncomfortable topic to think about, let alone discuss, but when it comes to taking care of your new baby, it’s important to plan for the future, as well as the here and now.

According to independent financial advisers, Clifford Osborne, only 27% of new parents take out life insurance, so why should you?

Ask yourself how the mortgage, rent, bills or debts would be paid if either you or your partner were to die.  With living costs at an all-time high, now might be the right time to get a policy in place to cover your expenses, should the worst happen. 

Depending on the policy you buy:

  • You pay a monthly payment, known as a premium
  • You’ll be covered for the length (term) of the policy
  • If you die within that time, the insurer will pay out the pre-agreed amount

Typically, the earlier you take out a policy, the cheaper your monthly payments will be. So now is the perfect time to get covered.

What expenses does a family need to pay when someone dies?

The first big bill your family could be hit with if you pass away is the funeral. The 2022 Cost of Dying report published by SunLife shows the average funeral in the UK costs £4,056. 

Add funeral costs to any ongoing bills, and the figures can become daunting. Take a look at some of things a payout could support:

Your mortgage or rent: Bills still needs to be paid, even if the main breadwinner passes away. Rather than struggling to meet regular payments and risk losing your home, a life insurance policy could offer financial security.

  • Debts: Any joint loans or credit cards will need to be paid by the surviving partner – finding the money to pay these off can be difficult for just one person.
  • Childcare: As a parent, you’ll want to ensure your children are well cared for. Any settlement from a life insurance payout can be used to help cover the cost of childcare.
  • Education: Further education is expensive. If you want to give your child every opportunity, the payout could be used to pay for tuition fees.
  • Everyday expenses: Many people forget about the everyday bills – but these add up, too. Food and utilities such as gas and electric, can quickly become a burden.
  • Hospital bills: If you have an accident or are diagnosed with a terminal illness, life insurance can help pay for your hospital treatment.

Of course, the money from a life insurance settlement can be used for whatever you need. It could be all, some, or even none of the things listed above.

Is life insurance right for you and your family?

Life insurance provides the financial protection when your family needs it most. StandOutCV have worked out that the average cost of living for a household in the UK, including rent or mortgage, is £3,073 per month. Would this be achievable on one salary?

If life insurance sounds like the right option for you, you’ll need to decide which type you get. In general, there are two types of life insurance to choose from: level term and decreasing term.

Level term insurance

  • Pay a fixed amount each month
  • If the policyholder dies, the policy pays out a pre-agreed amount
  • This can be spent however you wish

Decreasing term life insurance

  • Policies normally cover a large debt such as a repayment mortgage or loan
  • Cover reduces over time roughly in line with your outstanding debt
  • If the policyholder dies, the policy pays out a lump sum 
  • Can be cheaper than level term insurance as cover reduces over time

How much cover should you take out?

This may feel like a difficult question to answer – after all, how much money will your family really need if you were to pass away? But luckily, providers usually have pretty handy tools such as a cover calculator.

Consider factors such as:

  • Your salary
  • How many children you have
  • Whether you have a mortgage or other debts
  • If you want to leave your family a lump sum

You’ll then be given a quick estimation of how much you’ll need to be covered for. This helps give you a much better idea of how much it would cost to look after your family.

What are the benefits of joint life insurance?

Something new parents should think about is whether to take out a joint life insurance policy. This is life cover with the names of both parents on the contract. Then, if either parent were to die, the surviving partner would receive a payout and the policy would end. 

Joint policies can work out cheaper than two single policies and there’s a little less paperwork involved, so it could be a good alternative.

Take a look at our comparison of the two, and weigh up the right option for you:

Single Policy

  • Covers just one parent
  • Settlement made when the policyholder dies
  • The surviving parent could still have their own policy
  • If the relationship breaks down, both parents will be covered by their own policy

Joint Policy

  • Covers both parents
  • Only one final settlement, when the first parent dies
  • The policy ends once a payout is made
  • If both parents die at the same time, only one payment is made
  • Could be cheaper than taking two separate polices

There are clear pros and cons to both single and joint policies, so you’ll need to have a think about what the best fit is for your family.

How much does life insurance cost?

Whether you’re looking for a single or joint insurance policy, it can be good to know that your loved ones will be taken care of, financially, if you pass away. Find out more about Direct Line Life Insurance.

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