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Life insurance for new parents

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Why life insurance is important when you’re a parent

It goes without saying that raising children can be expensive, so your income, or that of another household member, is often the only way to pay for the everyday costs that come with looking after a child.

If you or someone you rely on were to pass away, it would take its toll financially, in addition to the emotional stress. Life insurance is one way to have a safety net in place.

Life insurance for new parents

Children cost money

And if you want to leave a lump sum to help cover the costs of yours, there are a few common outgoings you’ll need to think about when working out how much life cover you need:

  • Your mortgage and other outstanding debts
  • Monthly outgoings – are you worried about running costs for the home being covered?
  • Educational costs, like equipment, uniforms and books – or a private education
  • Childcare costs – whether that’s nursery or extra care during the school holidays
  • Everyday costs, such as food, clothing, toys, outings, activities
  • Yearly expenses, like birthdays, holidays, festive celebrations…

If the main breadwinner should pass away, you might find you want more of these costs covered. It really depends on your financial situation, and what your family could afford without you.

If you’re more interested in leaving a lump sum for your children, rather than covering outgoings, you could consider writing your life insurance in trust. That way, you have more control over how your children can access it.

Life insurance for single parents

If you’re a solo mum or dad, you should think about who would take care of your children if you pass away. Life insurance could help to ease the financial impact on your child’s guardian.

Consider writing your policy in trust too. This often means your beneficiaries get a quicker payout. And that the payout should be exempt from inheritance tax, depending on your circumstances.

You should also make a will setting out your wishes, in order to prevent potential disputes between relatives.

What life insurance is best for new parents?

Life insurance comes in three types:

Level term

This is the simplest type. You choose the payout value and how long the policy lasts. This is handy as you know the exact amount your dependants are getting.

The policy will only pay out if you die within the term period you’ve chosen.

Decreasing term

This is best for helping your dependants cover debts that lessen over time, like a mortgage – it’s why this type of policy is also known as ‘mortgage life insurance’.

If you died near the start of the policy, your dependants would get a larger payout than near the end when there’s less mortgage to pay off.

It can be cheaper than level term, but if you increase your borrowing the amount may not be enough.

Critical illness

You can get this as part of a decreasing or level term policy (integrated), or as standalone cover (with or without life insurance).

It’ll pay out a fixed amount if you’re diagnosed with a serious illness – which could be useful if you’re unable to work.

If you buy critical illness cover as part of a decreasing or level term policy, it'd only pay out once. So if you claimed for an illness, the policy would end, and your dependants wouldn’t get another payment when you die.

With standalone cover, your critical illness cover pays out if you become ill. But your life is still insured. Your life insurance would pay out if you die.

You can compare standalone cover with level term life insurance with us. 

How much cover do I need?

This depends on your situation, such as how many children you have, your lifestyle and your finances. Think about those common outgoings we mentioned before.

As a rule of thumb, you’d probably want your life insurance payout to be roughly 10 times the value of your annual income.

How much does life insurance cost?

This depends on things like the amount of cover you need, your policy length and type, as well as your age, health, lifestyle, and whether you smoke.

Your life insurance will probably be cheaper if you can pay your premiums annually rather than every month.

To get the best deals around on your life insurance as a new parent, compare a range of policies and providers to find the one that best suits your circumstances.

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[1]For comparing quotes online, Gocompare.com introduces customers to Neilson. Which is a trading name of Neilson Financial Services Limited who are authorised and regulated by the Financial Conduct Authority no. 594926. Gocompare.com's relationship with Neilson Financial Services Limited is limited to that of a business partnership, no common ownership or control exist between us.