The right life insurance policy can provide a financial safety net for your growing family.
Becoming a parent for the first time is one of life’s great joys, but it also brings with it increased responsibility. The days when you only had to look out for yourself are now long gone, and it’s important to make sure you and your loved ones are protected against whatever the future may hold.
This is where life insurance can help, providing essential financial protection against a range of life-changing events.
A 2015 Deloitte study found having kids as a top 4 reason when people consider life insurance
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5 reasons why new parents should get life insurance
There are plenty of important reasons why young families should consider life insurance, including:
1. You can provide for your loved ones
Your new baby and your partner are the most important people in the world to you, so you want to make sure they will be looked after even if you’re no longer around. Life insurance reduces the financial impact of your death on the people you love.
2. You can protect your income
How would your young family cope if you or your partner died unexpectedly or suffered a serious medical event that left either of you unable to work? Life insurance can replace lost income and ensure that your family can continue to pay the mortgage, repay other debts and continue to meet ongoing expenses.
3. It’s best to start younger
The older you are when you take out life insurance, the more cover will cost. This is due to the fact that old age comes with a number of increased health risks, so taking out cover now could help you lock in your premiums at a more affordable level.
4. Cover through your super may not be enough
Don’t assume that any life insurance cover you have through your super provides enough protection. Superannuation life insurance usually only provides limited cover, which may not be sufficient for your growing family.
5. It's more affordable than you may think
New babies can be expensive and put extra pressure on the family budget, but life insurance may actually be cheaper than you realise. Compare a few quotes to see just how much life insurance for new parents will cost.
How much does it cost to raise children in Australia?
As any parent will tell you, a lot. Data from the Suncorp Bank Cost of Kids Report revealed that in 2016, the average cost of raising a child to 17 years of age was over $297,600.
Imagine how challenging the cost of raising children would be if either you of your spouse or yourself suddenly passed away or were unable to work
The report showed that the ‘tween’ years (9 to 11 years of age) have the biggest impact on Australian household budgets, with kids costing $1,630 per month. Teenagers aged 15 to 17 are much cheaper to raise at $1,290 per month, while infants and toddlers are the least expensive ($984 and $1,425 per month respectively).
And that’s just the cost for one child. Add one, two or even more kids into the mix and it quickly becomes obvious that raising children is a big financial commitment. Imagine how challenging the cost of raising children would be if either you of your spouse or yourself suddenly passed away or were unable to work - this is why life insurance is so important.
How do I select the right life insurance for my family?
There are several factors you need to take into account when searching for the right life insurance policy for your young family, including:
- Learning about your cover options. “Life insurance” actually refers to a number of different types of cover. Each different policy offers a unique type of cover, so you’ll need to learn about the options available and then decide which one is right for you.
- Understanding your insurance needs. Think about what type of protection your family needs. For example, do you want to be able to provide for your family if you die unexpectedly, or maybe replace your income while illness or injury keep you out of the workforce?
- Choosing the right level of cover. Calculate how much life insurance cover your family needs. Think about how your loved ones would cope if you could no longer rely on your income e.g. financial commitments.
- Thinking about the future. You’ll also need to remember to take your future financial needs into account. As your children grow, so will your family budget and financial obligations. From buying a home to paying for your child’s education, think about how your situation will change in the coming years.
- Asking for help if you need it. Life insurance can be confusing and as a new parent you may not have the time on your hands to understand all the ins and outs of different policies. To ensure that you end up with the right cover, it worth using the help of an adviser.
What are the life insurance options for young families?
There are several types of cover you might like to consider for your growing family:
- Death cover. Term life insurance provides a lump sum benefit if you die or are diagnosed with a terminal illness. This ensures that your death doesn’t place a huge financial burden on your family, giving them the freedom to grieve and continue living their lives without having to worry about money.
- Total and permanent disability (TPD) insurance. TPD insurance provides a lump sum benefit when you suffer a total and permanent disability and are unable to return to work. You could use the benefit to pay off the mortgage, cover medical bills and help your family maintain their current standard of living.
- Trauma insurance. Sometimes also known as critical illness insurance, trauma insurance is designed to provide cover when you suffer a serious illness or injury such as a heart attack, stroke, severe burns or major head trauma. It provides a lump sum that can be used however you like, for example to hire someone to help out at home and take the pressure off your partner, or to replace lost income while you’re unable to work.
- Personal accident insurance. Commonly referred to as accidental injury insurance, personal accident cover provides a lump sum benefit when you’re injured as a result of an accident. The more serious the injury, the higher the benefit you receive, and you can use the funds to pay your medical bills and replace lost income.
- Income protection insurance. Income protection insurance is designed to help you continue providing for your young family while illness or injury stops you from working. It pays an ongoing monthly benefit to replace 75% of your income, allowing you to keep paying the mortgage and other bills while you concentrate on your recovery.
Do both parents need cover?
Whether or not you and your partner both need cover really depends on your personal situation. If both parents earn an income, then protecting those incomes is definitely worth considering.
Stay-at-home parents can also benefit from cover
A common mistake many new families make is to assume that if only one partner is responsible for earning the family’s income, that person is the only one that needs life insurance.
While this may be true for some families, it’s certainly not always the case. Although a spouse who works in the home may not earn an income, they still perform a long list of essential tasks in and around the home.
If they were to die unexpectedly or suffer a serious health problem and be unable to perform their normal role, their partner may need to take time off work to look after the kids, do the school run, maintain the home and do a number of other important jobs. This would in turn have an impact on their own ability to earn an income for the family, or in other situations the surviving spouse could be left with extensive childcare costs as they try to juggle work and family life.
Carefully consider your family situation and cover needs before deciding whether both parents need life insurance cover.
When you buy life insurance that provides death cover, you’ll need to name a beneficiary to receive the policy benefit when you die. For most people, this means their spouse or partner.
Should we name out children as beneficiaries?
However, if you decide to nominate a young child as a beneficiary, they will be entitled to access the life insurance benefit when they reach 18 years of age. This may be too young an age for them to properly and sensibly manage the money they receive, so another option is to set up a trust to hold the proceeds from the policy for your children. Then when they reach a suitable age, your beneficiaries can receive the funds through the trust.
Seek independent legal advice for more information on the best way to structure your life insurance benefit payment.
How is cover priced?
There are several factors that affect the cost of life insurance, including:
- The type of cover you choose. Death, TPD, trauma, income protection and personal accident insurance are all priced differently.
- The level of cover you select. The higher your level of cover, the more you’ll need to pay.
- Your age. As a general rule, the older you are, the more your cover will cost.
- Your gender. Cover is usually cheaper for women than men.
- Your health. The better your overall health, the less you’ll need to pay for cover.
- Your smoking status. Smoking is associated with a long list of health problems, so regular smokers have higher life insurance premiums.
- Your hobbies and pastimes. Love scuba diving, rock climbing or participating in other risky pursuits? You can expect to pay more for cover.
Life insurance for new parents provides critical cover to help protect your loved ones against the uncertainties of the future. Start comparing your options to find the best life insurance cover for your young family.
Life insurance from the perspective of a full-time mum
With so many different life insurance policies available in Australia, finding the right cover with features to match your situation is by no means an easy task. We had a chat with a full time mum, blogger, writer, and freelance makeup artist “Glowless” - the creator of Wheresmyglow.com to tackle some of the biggest issues/questions facing Australians looking to take out life cover.
- Do you have life insurance?
- I don’t actually have life insurance but my husband does. We considered that, should something tragic happen to me, he would be able to financially support himself and our son whereas if it was the other way around I would not be able to.
- Is it confusing to know what you would actually be covered for and when a payout would be received?
- I find any type of insurance confusing! There seems to be so much fine print that you have to study with a fine tooth comb before signing on the dotted line… but that’s life these days so take a magnifying glass and you’ll be fine.
- Do you feel life insurance is a topic most people try to avoid?
- Death is still taboo for many people, but luckily I come from a family who understand it’s just a natural part of the life cycle. It’s why we’ve all discussed organ donation, life insurance and wills.
- There has been a belief that Life Insurance companies neglect the female buyer when advertising their products. Would you agree with this?
- I can only assume on this, that any neglect of the female buyer would be because the self-view of the women. We tend to, in our at times martyr-ish ways, not believe we’re worth much financially – although when you start putting a price tag on a full time nanny, cook, cleaner, teacher, mediator, etc, it certainly adds up!
- Would you ever consider changing your current policy to find a more suitable policy at a more competitive price?
- We’re lucky enough that my husband works for a large company that has brokered a reduced rate for all employees for all sorts of insurance, so we’ve been unable to find anything cheaper!