Do I need to change my life insurance if I have a child?
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.
Having a child is an exciting, tiring and very different chapter of life. Many changes will have come to your lifestyle and thinking about life insurance might seem lower on the list of your immediate priorities. Yet it could be one of the most important things you do for your child as they grow. Here at Castlegate, our Grantham-based financial advisers recognise that life insurance is one of those things that you hope you will never need, yet most families are very glad that it is in place should the worst happen to you and/or your partner.
In this short guide, our financial planning team at Castlegate offers some thoughts on what to do with your life insurance once a child comes along. We hope you find this content helpful. If you would like to discuss any of these matters or your own financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
Life insurance & having a child
It is quite possible that, before having a child, you already had a joint life insurance policy in place. This is often sufficient for a married couple without children, for example, since the policy will pay out to the surviving partner should one of you die under the policy’s terms. This could be enough to settle the outstanding mortgage liability – opening up financial “breathing space” for your spouse/partner as they navigate the difficult months and years ahead.
The disadvantage of joint life cover, however, is that it only pays out once – when the first person covered by the policy dies. For new parents, therefore, the policy would not pay out a lump sum for your child should both of you tragically die in an accident. As unpleasant as this is to think about, it’s a vital aspect of financial protection to consider for your family.
Which type of policy should we take out?
This can be a tricky question to answer as everyone’s household and family are different. Some people assume that it only makes sense for the breadwinner to take out a life insurance policy, since their income would disappear if he/she died – potentially leaving the surviving caregiver and dependents in great financial difficulty. Yet this glosses over the reality that the death of the stay-at-home parent would also have a big financial impact on the family. After all, who would then look after the children? Might the breadwinner need to reduce their hours or even change careers to be more available at home, thus reducing the household income? Would you need to employ a nanny or other professional? This does not come cheap.
Broadly speaking, you have two main options for life insurance as new parents – two single life policies (one for each person) or an updated joint life policy. If you speak to a financial adviser and decide that life insurance is for you (and we urge you to consider it), then the option you choose will depend on your circumstances and what you want to protect. It will also matter how long you want the protection to go on for. Some parents, for instance, are happy to let their life insurance run until their child turns 18 and, therefore, is legally responsible for themselves.
Here are some questions to ask yourself with your financial adviser about your life insurance:
● What do both of you want to cover? Are you looking to simply ensure that your partner can pay off the remaining mortgage in the event of your death? Once a child comes along, however, you might also want your policy to provide an annual income to help your family pay its way until new income streams can be established.
● What is your budget? Two single life policies will likely cost more than one joint life policy. Yet the protection it offers might make it worth the extra financial commitment.
● Who will you name as the beneficiary? Consider that if you do not name a beneficiary in your policy then it will likely be added to the value of your estate and go through the probate process. This may not help your estate to minimise its inheritance tax (IHT) bill, which would eat into the value of the assets passed on to your loved ones.
If you think that you may need/want to change your life insurance policy, then we encourage you to seek professional advice to ensure you survey the complete range of options in front of you. It can also help you to integrate your protection policies efficiently into your wider financial plan, to avoid cover duplication and minimise unnecessary costs.
Having a child brings new joys and responsibilities. Here at Castlegate, we are here to help you with the financial considerations you may now be wrestling with.
If you are interested in discussing your own financial plan or protection strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense: