Is your life insurance sufficient enough to raise your children in case anything happens to you?
For a family with children, a major financial consideration is the cost of raising children. This is why you should consider how much cover your family might need need in your absence before taking out life insurance.
How much does it cost to raise a child?
Across all incomes and all age brackets, the average cost of raising a child in Australia is:
- $4881 per week
- Or $609,024 over 24 years
Is life insurance enough?
Yes it is. Most life insurance policies will offer cover up to $1.5 million in cover.
How much does life insurance cost per week?
Depending on the policy, life insurance can cost as little as $9 per week.
Before you apply for a sum, you need to consider a few other variables:
- Kids cost more as they get older. Raising a child from age 5 to 18 will cost more than raising them from 15 to 18.
- Private and public schooling. Whether your children go to a public or private school makes an enormous difference. If something happens to you, consider whether your kids will keep attending the same school or switch to a different one.
- Your income is a factor. You also need to be aware of how different income brackets spend different amounts on raising children.
Here’s how much the average family in each income brackets spends, per week, on children of different ages. Find the household income column that most closely matches yours, and consider it as a baseline.
|Child’s age||Low income family ($1,160 average weekly income)||Middle income family ($2,274 average weekly income)||High income family ($4,984 average weekly income)|
Source: National Centre For Social And Economic Modelling (NATSEM)1
Here’s how much families of different incomes spend on each child per week, on average, depending on how many kids they have.
|Low income||Middle income||High income|
When working out whether your life insurance is enough to cover your kids, you naturally need to think about how many children you have. Barring special needs or other unusual circumstances, your first child will cost more than your second child, who will in turn cost more than your third child. Don’t underestimate how much money you save with hand-me-downs, old baby gear and by having that extra child-raising experience.
While it does cost more to have more children, the cost of each child incrementally less than the previous child.
There are a few reasons why teenagers are pricier than you might think.
- Increased entertainment costs. Your toddler won’t ask for $20 to go see a movie, but your teenager might.
- Communication. Mobile phones, broadband and all the other utility costs that come with a technologically-savvy teenager under your roof.
- Transport. Adding a teenaged learner driver to your car insurance will raise prices a lot, and the cost of another semi-independent person’s public transport needs can quickly add up.
- Education. High school and tertiary education typically cost more than primary school, and have pricier requirements for textbooks and other course materials.
- Technology. Laptops, phones, PCs, tablets and all the other must-have gadgets of today don’t come cheap.
- Food. Teenagers eat a lot. In fact, food is one of the single biggest expenses involved in raising children, second only to transport. The average middle income family will spend an extra $143,000 on groceries over the course of raising two children, and a lot of that will be in the teenage years.
There are a lot of costs involved at this stage of childhood, so it can help to break it down. We’ve listed the essentials here that almost no family can do without.
- Essential baby gear. Strollers, car seat, toys, nappy bag, baby-carrier, clothing.
- Nursery. Cot, mattress, bedding, blankets, mobile, baby monitor.
- Nutrition. Bottles and nipples, sippy cups, baby crockery and utensils, bibs, high chair, formula or breastfeeding aids as needed.
- Hygiene. Baby towel or bathrobe, baby nail clippers, infant bathtub and changing table if needed.
- Other. Childproofing supplies, safety gates, pacifiers.
These basic costs can be as low as several hundred dollars all up to as much as several thousand dollars. Because it’s mostly one-off expenses, and most of the gear can be passed down to subsequent children, these costs are generally fairly manageable, and can be planned for with a straightforward checklist.
- Medical expenses. Infants, with their still-developing immune systems, can be vulnerable to some illnesses and infections, and it’s always better to take them to a doctor and be safe rather than sorry. Even with the public health system, the co-payments can still add up quickly. Expect medical expenses. You may wish to plan for this by switching to a family health insurance policy and including your new child on it.
- Utility costs. You’ll be washing a lot more clothes and dishes than normal, and many families find themselves running the heater, lights and air conditioning more than they used to as well. If you or your partner is taking time off work to be a stay-at-home parent, then simply having someone home all day can also make its mark on the utilities bills. By expecting and planning for this, it can turn from an unwelcome surprise into a manageable cost.
- Housing and renovation. People whose home is too small to comfortably fit the new arrival often find themselves renovating or moving out of necessity, even if it’s not the best financial decision. Bigger houses, bigger cars, new furniture, moving expenses, renovation costs and everything else involved in making room for the baby can get very expensive.
Don’t forget childcare
And of course, childcare. A lot of Australian households are struggling with the skyrocketing cost of childcare so you need to be particularly aware of this.
You and your partner need to decide:
- Who is working. Whether it’s only one of you, or both of you.
- The working arrangements. Whether it will be full-time, part-time or casual, in the office or from home. This is essential to anticipating childcare costs.
There are various childcare choices available. This is how much you can expect to pay for them.
|Type of childcare||Typical cost|
|Nanny||$15-$35 (per hour) depending on whether the nanny is live-in or live-out.|
|Nanny (from a sharing service)||$12 (per hour) plus service fees|
|Au pair||$170-$200 (per week) plus service fee|
|Mother's help||$12-$16 (per hour) depending on live-in or live-out|
|Long day care (childcare centre)||$70-$190 (per day)|
|Pre-school||$45-$80 (per day)|
|Family day care||$5.50-$16.80 (per hour) depending on location and service|
|In-home care||$20-$25 (per hour)|
|Babysitter||$15-$35 (per hour) plus service fee|
|Outside of school hours care||$15-$30 (per day)|
Why is childcare such an important consideration?
Out of necessity, dual-income families are becoming the norm. This has led to big demand for childcare services which has in turn led to higher costs. For modern families, paid child care has become a primary cost consideration.
Should you return to the workforce and use childcare services, or become a stay-at-home parent? To decide whether you should return to work or transition into being a stay-at-home parent, you need to know what your childcare plan will be.
If you're household is dependent on two incomes
In many cases you'll have no choice but to use child care. Here it may be worth trying to find a cost-effective childcare option, and looking at the Australian government’s child care benefit and child care rebate schemes to see if they can help.
What are the costs of long-day
Do not underestimate the total costs of childcare. Over 600,000 Australian families are paying over $170 a day, per child, for long-day childcare. If you're unable to return to work in a secure position that pays well enough, the cost of childcare might render it not worthwhile.
Life insurance pays benefits if something terrible happens. You can choose to be covered against death, disability, serious injury or illness, or even lost income. Each of these protections is a different part of a modular life insurance policy. You can choose the ones you want and get rid of the ones you don’t.
- Term life cover. This part of life insurance pays lump sum benefits on death. It’s the only part that’s not optional, and is included in all life insurance policies. Choose an amount of cover for this that lets your family carry on if you were to pass away.
- Trauma insurance. This important component pays out if you are diagnosed with a serious illness like cancer, or suffer severe health issues like blindness, diabetes complications or need a coronary angioplasty. These carry big medical costs, as well as potential disablement and loss of income which can add up to really put your family in a tight spot. It typically offers a similar sized payout to term life cover.
- TPD. Total and permanent disability is one of the most expensive things that can happen. It’s defined by an inability to work, which means it pays out if you suffer a permanent disability that leaves you unable to do your job. It should be enough to help you adapt, and keep your family above water in the meantime.
- Income protection. An important component, income protection insurance will pay out a portion of your typical earnings, usually no more than 75%, if you’re medically unable to work, until you can get back to the job. If you don’t have enough savings to provide for children and other dependents for at least several weeks, if not months, income protection insurance can make a clear difference.
To work out whether or not your life insurance payout is enough to see your kids through to independence, you need to:
- Think about the future living standards of your children. Consider whether you want a life insurance policy that pays enough for your family to maintain their current standard of living, or if a downgrade is to be expected.
- Think about the future costs as well as the immediate costs. Examine how the cost of raising a child grows drastically as they get older, more than doubling between ages 10 and 18. This is true of all income groups. A teenager has more communication, transport, mobile phone and Internet costs, their clothing is more expensive, and they even tend to eat enough to make a real dent in your household budget. Don’t underestimate how much more expensive older kids are than younger ones.
It’s hard to work out how much it will cost to raise your children until they’re fully independent, but it can become almost impossible if you start thinking about the cost of serious accidents or sickness too.
This is one of the reasons many life insurance policies will also cover your kids. Sometimes they will offer free cover with a family policy, while other times it’s a separate option that you can select for more benefits.
Kids are costly, so we’re not going to pretend that having one less cup of coffee a week or saving more spare change will be enough to fix everything. Instead, try building these five habits:
- Buy food by nutrition value, not cost or quantity. More nutritious food goes further and can fill you up faster. The best way to stop kids from eating you out of house and home is to make sure they’re well fed.
- Embrace the sharing economy. Help friends, family or neighbours out by babysitting their kids, and they will more than likely be happy to do the same for you. Carpooling, sharing baby toys and otherwise keeping costs down like this will not only pay off in money saved immediately, but save you increasing amounts as your network grows. Someday you might have a free babysitter just a phone call away, as long as you don’t mind doing a bit of babysitting yourself.
- Take full advantage of second-hand items. Get in the habit of buying gender-neutral baby gear and clothing to more easily resell or pass it on to someone else, and keep your eyes peeled for the boggling array of second-hand baby clothing available for sale. They grow fast so there are always a lot of second-hand items around the place.
- Purchase with caution, but buy in bulk. Buy in bulk wherever cost, storage space and common sense permit. Essentials like baby food, nappies and formula, things you know you’ll use, can be smart items to pick up in bulk. However, be sure they’ll be used. You don’t want to pick up 20 baby toys only for your child to pick out their favourite and never touch the rest.
- Teach the important skills. Consider instilling skills and values in your children that can help you out in the long run. For example, you can familiarise them with the public transport system early to save money on driving them everywhere, or make sure they’re able to safely babysit younger siblings.