Becoming a parent is a major life stage, with new joys and responsibilities. It’s also a critical time to review your finances, including whether your insurance policies still protect you and fully meet your family’s priorities.
Life can offer many surprises, with unexpected consequences. As a parent, life insurance could be a crucial element in your overall financial and family planning strategies, ensuring your children will be looked after no matter what happens in life. So what types of life insurance policies are out there and what should you keep in mind when choosing a policy?
1. Types of Life Insurance
Life insurance products are available in a few different forms, and it’s important to explore your needs and goals so you can select the right type of product.
- Life cover – Also known as term life insurance or death cover, this type of life insurance cover pays your beneficiary a lump sum when you die.
- Total and permanent disability (TPD) insurance – This type of product pays you a lump sum to cover rehabilitation and living costs in the event you experience total and permanent disability.
- Trauma insurance – Trauma insurance pays you a benefit if you have a major illness.
- Income protection insurance – Income protection insurance covers some of your regular income if you can’t work due to injury or illness.
2. Term Insurance vs Permanent Life Insurance
It’s also important to consider whether your product is a term insurance product or a permanent life insurance product. The former covers you for a set number of years, such as 10, 20, or 30 years, and so will only pay your beneficiary in the event of your death within this given period.
Permanent life insurance lasts your entire lifetime, and not surprisingly it tends to come with higher premiums. As a parent, you might decide term life insurance up to a given age, when your children are adults, would be appropriate for you.
3. Reasons You Need Life Insurance
We’d all prefer not to think about it, but the unexpected can happen at any time. Raising children is an expensive proposition, with hundreds of thousands of dollars spent from birth to the age of 18.
If one parent were to pass away, the remaining family members could find it a challenge to cover their rent, mortgage, groceries, childcare, education, and other expenses. Life insurance gives your family certainty in an uncertain, volatile world. It could ensure your children are well taken care of no matter what.
Depending on the plan you choose, your life insurance payout could cover everything from your children’s living expenses to their education costs up until they come of age.
It’s not only working parents who should consider life insurance. Stay-at-home parents could also benefit from the extra security of having life insurance. Whilst you might not earn an income, consider what your absence could mean for your partner, with the extra costs of childcare, homemaking, household help, and other labour and expenses.
Life insurance for a stay-at-home parent could offset some or all of the financial burden associated with this scenario.
4. How Much do You Need?
Life insurance replaces some or all of your income in case the unexpected happens. How much you need depends on your circumstances. Consider your salary, your children’s future educational expenses, childcare costs, mortgage or rent, other ongoing expenses, and funeral costs. You can then choose a cover amount reflecting these expenses.
Keep in mind life insurance is likely to be more affordable than you think, especially if you’re younger and healthy. You can usually pay the premiums via an affordable monthly fee. This makes it a manageable, predictable expense in your household budget.
5. When should You Buy Life Insurance?
The earlier you buy life insurance, the more your children will be protected from earlier in their childhood, and the more affordable your life insurance will be. As you move into a new life stage, you might review your life insurance and change it.
For example, getting married and taking on shared financial obligations like a mortgage could warrant a review. Having a child could be another stage of life when you need to check whether your life insurance is still adequate for your needs. Your insurance through super might not cover everything you need for bringing up your family.
Protecting Your Family is the Goal
Parenthood tends to bring out the most nurturing, protecting, and caring impulses in us. You want to keep your children safe and well cared for no matter what – even if the unthinkable happens.
For this reason, life insurance can be an essential safety net for parents, giving you the certainty that your children will be provided for.
As with any type of insurance, review your policy regularly so you’re confident it continues to meet your needs. Welcoming another baby and changing financial circumstances are all important changes that warrant a review of your life insurance.