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Once you enter the world of parenthood, life takes on a new twist: more joys, more care, and, well, more responsibility. That responsibility includes providing for your spouse and child financially even if something were to happen to you.
Taking out life insurance is one way to ensure that your young family remains financially secure in the event you’re not around. But with so many life insurance policies, it can be tough getting everything squared away.
So here’s a quick guide to life insurance for new parents.
Estimate the Cost of Raising a Baby
No doubt kids are expensive to raise. According to the Child Poverty Action Group (CAPG) 2021 Cost of a Child report, the typical couple in the UK can expect to spend £71,611 raising a child from birth up to the age of 18.
For lone parents or guardians, the cost of raising a child is around £97,862. Keep in mind that this rough estimate is exclusive of childcare, housing and council tax. If you were to add those expenses, the amount would rise to a staggering £152,747 for couples compared to £185,413 for single parents.
Clearly, raising a child from crib to college is no mean feat. As such, it’s in your best interest to get the cost estimate in advance. This will help you select a life insurance policy that covers your loved ones for the period that you anticipate them to depend on your income.
Go for What You Can Afford
Every parent wants to put their child in the best position to succeed. But let’s face it—each family is unique in terms of financial capacity. Therefore, no single policy will be suitable for everyone.
If you’re a new parent on a budget, don’t abandon the mission of buying life insurance. Instead, buy any amount of coverage you can afford now. Then plan to get additional coverage in the future.
The point is having some form of life insurance coverage is better than having none. This policy ensures you leave behind some degree of financial support to cushion your loved ones in the event that you pass away unexpectedly.
Get Your Life Insurance Policy Now
Now that you’ve just received your bundle of joy, there’s never a better time to buy your life insurance policy than now. The sooner you take out your life insurance policy, the less you have to pay. Here’s the rationale behind it:
Insurance operates on the principle of risk. And so, when you’re young and healthy, you’re less of a risk. Good health translates to lower costs in annual premiums since, technically, your chances of survival are higher.
On the contrary, as you get older, you could develop illnesses such as diabetes or heart disease. To keep their losses down, insurers will charge you higher premiums or even disqualify you from purchasing a plan. It’s best to grab the earliest chance and buy a policy at a younger age while it’s still affordable.
Decide Between Whole of Life and Term Life Insurance
There are several life insurance policies available for new parents. But two of the most common options are term life and the whole of life insurance.
Term Life Insurance
Term life insurance offers protection for a set number of years. You can choose a plan that lasts for 10, 20, or more years. Provided you pay your monthly premiums, your beneficiaries will receive a death benefit should you pass away during the course of the insured term.
Term life insurance is a great option for new parents on a budget. It has more affordable insurance premiums, and you may be able to renew your coverage as you approach the end of your term. We recommend that you buy a term life policy that won’t expire before your child becomes financially independent.
Whole of Life Insurance
The whole of Life insurance, also called permanent life insurance, offers lifelong coverage as long as you pay the monthly premiums. It’s unlike term life insurance as it doesn’t have an automatic expiry date. Furthermore, this policy comes with the cash value component, meaning it doubles up as an investment tool.
Permanent life insurance makes the most sense for new parents with a lifelong dependant. For example, it’s suitable for wealthy parents whose child has special needs. Your children can use the built-in savings account for estate planning. This policy is expensive, so we recommend it to new parents who have the financial capacity to service hefty monthly premiums.
As a new parent, life insurance is such an incredible risk management tool. It allows you to build a solid financial ground for your spouse and child so you can continue to provide for them even after you’re gone.
Whether you prefer term life insurance or whole of life insurance, the policy can replace the financial assistance you provided to your loved ones.
Which life insurance policy would you prefer as a new parent? We’d appreciate it if you could let us know in the comments below.