For new parents, there’s so much going on that it’s hard to know which way to look. Protecting the future of your children is one aspect which shouldn’t be ignored. Life insurance is a good way of providing financial support to your family in the event of your death.
This is a general description of life insurance and the products available. You’ll want to ensure the product you choose suits your needs and circumstances.
What is life insurance?
Life insurance delivers a cash sum to your loved ones should you die. Your death and the impact it would have on your family might not be something you want to think about, but planning for their financial future should the worst happen is much better than ignoring it.
Ask yourself how the mortgage or rent, any debts, and ongoing bills would be paid should you pass away?
The policies are really simple to understand, and we won’t confuse you. Depending on the policy you buy:
- You pay a monthly premium
- You’ll be covered for the term of the contract
- If you die within the period, the insurer will pay out the pre-agreed amount
- This will help your family financially
Typically, the earlier you take out a policy the cheaper your monthly premiums will be. So, why wait?
Why is life insurance good for families?
Many families are dependent on one main breadwinner. If that person passes away, the surviving family could struggle to meet bills and other expenses.
This makes life insurance an important consideration for any family.
Life insurance provides the financial protection your family needs in the event of your death. In general there are two types of life insurance to choose from: level term and decreasing term.
Example 1: Level term insurance
- Pay a fixed amount each month
- If the policyholder dies, the policy pays out a pre-agreed settlement
- This can be spent however you wish
If you’re a new parent, this is a great option. You’ll pay the same amount every month, and if you die (during the contract period), your family receives a payout. It couldn’t be simpler.
Example 2: Decreasing term life insurance
- Cover is reduced over time roughly in line with the way a repayment mortgage decreases
- Policies normally cover a large debt such as a repayment mortgage
- If the policyholder dies, the policy pays out a lump sum
- Usually cheaper than level term insurance as cover reduces over time
As a new parent, this type of policy protects your family home at a crucial time – when the debt is at its greatest.
What expenses will a family need to pay?
Life insurance helps to cover a family financially. Having a child is one of the greatest moments in your life, but children bring with them a number of extra expenses. If one, or both parents were to die, is the child’s future protected?
Any parent will have a number of ongoing monthly costs, and life insurance could help with all these. Take a look at some of things a payout could support:
- Your mortgage or rent: The mortgage or rent still needs to be paid, even if a parent passes away. Rather than struggling to meet regular payments, 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 life insurance payout could be used to pay for tuition fees.
- Everyday essentials: Many people forget about the everyday bills – but these add up too. They include food and utilities such as gas and electric, which can quickly become a burden.
- Hospital bills: If you’re terminally ill, life insurance can be spent helping to pay for your hospital treatment. This helps remove the financial responsibility from your family.
Of course, with a life insurance settlement the money can be used for whatever is needed most. It can be all, some, or even none of the things listed above.
How much cover should we 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.
It takes into account 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 want to be covered for. This helps give you a much better idea of how much it would cost to look after your family.
Should we get joint life insurance instead?
A consideration for new parents is whether to take out a joint life insurance policy. Pretty self-explanatory, this is life cover with the names of both parents on the contract. If either parent were to die, the surviving partner would receive a payout and the policy would end. It’s an alternative to consider versus two single policies.
Joint policies can work out cheaper and there’s possibly a little less paperwork involved – so it could be a great option for you.
Take a look at our comparison of the two, and make up your own mind:
- 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
- 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 a cheaper option than taking two separate polices
There are clear pros and cons to both single and joint policies, so you’ll need to weigh up the options and decide which is right for you.
Get your quote for life insurance
Whether you want a single or joint policy, protecting your family will always be at the front of your mind. You can save money by taking out a policy today rather than next week – so don’t delay.