Pregnant? Reassessing your insurance needs
Pregnancy forces you to think about the future. As well as thinking about names and nursery decoration, it's worth giving some thought to your family finances, and considering whether to put safeguards in place to protect your child financially.
No matter how well-laid your plans, things do sometimes go wrong - so it's important to take the unexpected into account. What would happen if you or your partner became unable to work or passed away? How would the family cope financially?
Doing something as simple as getting an insurance policy can give you the peace of mind that whatever happens, your family will be taken care of.
Why might you need insurance?
When deciding if you need protection insurance you need to ask yourself some difficult questions:
- How would you or your dependants cope financially if you or your partner became unable to work?
- Who would pay the bills, including the rent or mortgage?
- What about any outstanding debts, including loans or credit cards?
- What about daily living expenses?
One of the many myths around death or illness is that the state will step in to ease the financial burden. In reality, people tend to receive far less in benefits than they expected - for example, support for mortgage repayments (if you're eligible) is limited to interest payments.
Which types of insurance might make sense for new parents?
Life insurance pays out a lump sum to your dependants if you or your partner dies unexpectedly. You can choose between 'whole of life' policies or a 'term' life assurance policy. The former pays out whenever the insured person passes away, while the latter provides cover during a specific time range.
'Term life' policies tend to be cheaper, and may make more sense when you're thinking about protecting your baby's future; you can choose, for example, an 18-year policy to protect your child until adulthood, or a 25-year policy to cover your mortgage payments. This will take care of your dependents during the time they need it most.
Income protection insurance is designed to provide you with a regular income in case of long-term illness or disability. Some short-term income protection policies also provide redundancy cover. They cover a set percentage of your income - usually up to 60-70% of your gross salary - and pay out after a pre-determined amount of time, typically between four and 52 weeks. In most cases, the longer the deferred period, the lower the cost of your insurance.
Make sure you're not doubling up
When it comes to personal financial protection, it's always worth checking what protection you might already have. You or your partner may find you're already covered in some way through a workplace benefits scheme.
Benefits provided by your employer might include a death-in-service award, private medical insurance, sick pay, or some form of income protection from a flexible benefits arrangement. However, it's important to remember that if you leave your job or lose it, you'll also lose any associated benefits.
How much does insurance cost?
Most people pay a set amount of money for their insurance every month. This is called a premium and the cost will depend on a number of factors ranging from your age (the older you are, the more you pay), to whether or not you smoke, or have previously smoked.
The cost will also depend on the level of cover you opt for; if you purchase a life insurance policy which pays out £100,000 if you die, this will inevitably be more expensive than one that pays out £50,000. Any premium you agree to needs to be affordable and not result in financial hardship - the precise thing you're trying to avoid.
Where to go for an insurance quote
One way to purchase personal protection is through a financial advisor: they'll be able to work out what you have and what you need, as well as consider other priorities such as the need to save for retirement, pay off existing debts or build an emergency savings fund.
They will also be able to help assess your capital and income requirements and how they may change in the short-long term. This will help ensure that you only purchase the cover you need, when you need it.
You can find an independent advisor through:
Alternatively, you can purchase a protection policy directly through an insurance company - but it's worth doing your research first.
What Mumsnetters say about protecting your family's financial future
"We have life insurance, because if something happened to one of us the other parent wants to be at home with our young children for a while without worrying about money."
"My dad died when I was 13. He did have some life insurance, which my mum used towards buying a house at the time. Not sure what we would have done without it - a very tough time would have been even harder."
"I am very slack about insurance generally; I don't have pet cover and don't have house content cover. I have always had life cover though, it was a condition of our mortgage and I just felt happier knowing that there would be something for our children should anything happen."
This article is provided by the Money Advice Service. All information accurate as of date of publication.
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Disclaimer: Any content in our family money section is intended as general information only. For specific advice about your personal financial situation, get advice from qualified, independent, regulated professionals.
Last updated: over 2 years ago