As a parent, you want to provide for your children. You likely have a budget for how you’ll pay for their clothes, food, school, and other day-to-day needs. In addition, it’s also important to have a plan should something happen to you unexpectedly, causing the family to lose your income.
A recent survey found that almost half of households would find it difficult to pay their living expenses (such as rent/mortgage, utilities, groceries, schooling) within six months of the death of their family’s primary earner. This is at least partly because many families do not have life insurance.
If you’re a parent, it’s a good idea to buy life insurance in order to protect and care for your family, even in the event of your unexpected death. Here is everything you need to know about what life insurance is, how it works, and how it can protect your family.
What Is Life Insurance for Parents?
Parents buy life insurance to provide money to a beneficiary in the case of their death. This money can support your family in your absence to pay the mortgage, fund their education, or pay other day-to-day expenses that you used to cover with your salary. Usually, the beneficiary is your surviving spouse or one or more of your children.
How it Works
If you name your children as beneficiaries but they are minors when you die, the insurance company can’t pay the benefit directly to them.
However, you can name a custodian or set up a life insurance trust to hold the money in your children’s name. If you set up a trust, you will need to appoint a trustee to manage it according to your instructions to care for your children until they reach adulthood.
Types of Life Insurance for Parents
There are two different kinds of life insurance: term life insurance and permanent life insurance.
Term life insurance is temporary and only covers a set number of years. You can choose between 10-, 20-, or 30-year terms. If you die anytime before your term is up, your beneficiary receives your full death benefit. Term policies can cover you right up to age 91-depending on the company you have it with.
Whole of Life or Permanent life insurance lasts your entire lifetime, but it is generally more expensive. Your beneficiaries receive your death benefit when you die. The premium remains the same thorughout the duration of the policy. Some plans can offer cash back options. To discuss your best options best to give us a call.
Most healthy, younger parents tend to opt for term life insurance, especially if they are on a budget because it is generally more affordable while still ensuring that their children are financially taken care of until they reach adulthood.
Why You Need Life Insurance
It’s no secret that it’s expensive to raise a child. According to recent estimates, it costs approximately €105,321 to raise a baby to the age of 18, though this amount varies based on where you live and your lifestyle.2 If you were to pass away, your family would lose your income, affecting their ability to pay the rent or mortgage, buy groceries, pay for childcare, and handle other day-to-day expenses.
This is why life insurance is important for families: it helps cover these financial costs during your kids’ formative childhood years in the event of your unexpected passing. Depending on your plan, your life insurance death benefit can also cover some or all of the costs of your children’s education, including college.
Both Parents Should Get It
It’s a common assumption that only working parents need life insurance because they are the ones that provide a salary to support the family.
However, stay-at-home parents should consider getting life insurance because, while they may not earn a salary, they do a lot of work to care for their children. If that parent were to die, it is unlikely that the surviving, working parent would be able to maintain that care on their own. Instead, they would need to find alternate childcare and household help, which costs money. Life insurance could help pay for this support.
How Much Life Insurance Do I Need?
Life insurance benefits are meant to replace any income you would have contributed to your family if you hadn’t died. How much that is, of course, depends on your unique circumstances, but here are some expenses to factor in when looking at plans and calculating how much you need:
- Your financial contributions (e.g. your salary)
- How much you want to save for your child’s education
- Childcare costs (if you don’t have childcare now but you are a stay-at-home parent, calculate how much childcare would cost to replace the work you had been doing at home)
- Your mortgage or rent costs
- Family expenses or bills
- Other child-rearing expenses (such as extracurricular fees, camp fees, music classes)
Life Insurance Is More Affordable Than You Might Think
It is common for people to overestimate how much life insurance costs, which is why families tend to opt-out of buying it.
The truth is, life insurance policies are much more affordable than you might think, especially if you buy a term life insurance plan.
Most life insurance premiums are between €20-€100 per month again depending on the amount of cover and you health and smoker status. Premiums start from as little as €10.00 per month
How Life Insurance Is Priced
The monthly price of your life insurance depends on what policy you buy, what company you buy it from, the coverage amount, and the length of the term. But other factors that affect the price include:
- Age: The younger you are, the less you pay
- Health: If you are in good health, you pay less
- Smoking habits: Non-smokers pay less
- Lifestyle: People with risky careers or that engage in risky hobbies pay more.
When To Buy Life Insurance
The younger you are, the more affordable life insurance is to purchase. Quotes tend to go up every year you wait because you are more likely to have a pre-existing condition and/or declining health, two factors that can raise your monthly premiums.
As a parent, buying life insurance early also protects your children financially earlier in their childhood.
Work-Provided Life Insurance Isn’t Usually Enough
Many employers provide life insurance. This is called group life insurance.
These plans also may not fully cover your family’s financial needs because they usually cover one or two times your annual salary. This could leave your family vulnerable within a year or two of your death.
It is true that you can usually purchase additional coverage at a group rate to protect your family for a longer period of time. However, most employer-provided policies are not portable so if you were to lose or switch your job, you would also lose this life insurance.
As a result, even if your employer offers group life insurance, you will likely want to purchase insurance through an insurance broker.
A Note from the Low Cost Life Cover Family
As a parent, buying a life insurance plan for yourself (and your co-parent or partner) is one of the best ways you can guarantee that your family is taken care of financially in the unexpected event of your death.
While this is an added expense to your family budget, the benefits more than pay for themselves over time because they provide parents peace of mind. Plus, its probably the best investment you will ever make. In most cases you will never pay in what it will pay out!