Having a child is a life-changing experience. As well as suddenly becoming responsible for the life of another person, you must also provide financially for your new son or daughter until they become independent.
And raising a child can be expensive. A recent report from the Child Poverty Action Group (CPAG) suggests that it costs £152,747 for a couple to bring up a child to the age of 18, and £185,413 for a lone parent (the extra is mainly to cover additional childcare costs).
Considering these costs, it’s perhaps no surprise that insurer Royal London says that starting a family is one of the most common triggers for getting financial protection. But what sort of protection do you need to safeguard your finances and give you valuable peace of mind?
Here are three types of protection to consider.
1. Life insurance will ensure your family are financially supported if the worst happens
According to a recent Legal & General study, only 41% of 23- to 38-year-olds with children have life insurance.
While no one likes to think about their own mortality, if you have children it’s vital that you ask yourself questions about what would happen if you passed away:
- Could your family remain in your home?
- Would there be enough income remaining to pay mortgage, rent, utility bills etc.?
- Would your children still be able to live the life you want for them?
Life insurance ensures that financial support is available when you’re no longer around. It provides a lump sum which your beneficiaries can use to repay your mortgage, replace your income, and pay for essentials.
Writing your life insurance in trust also helps you to ensure that the money is allocated according to your wishes.
For most parents, it’s quite possible that life insurance costs a lot less than you might imagine. Insurer Legal & General recently asked almost 3,000 millennials to guess the typical monthly cost of a life insurance policy to cover a 30-year-old non-smoker with a cash sum of £100,000 for 30 years.
The median guess was £23 per month, more than three times the £7.27 per month it typically costs. So, if you’re starting a family, you could benefit from the peace of mind of knowing your loved ones are protected for less than the cost of a standard Netflix subscription.
2. Critical illness cover provides a lump sum when you need it – and often covers your child
If you’re diagnosed with a serious illness, you may have to take an extended period off work and make regular hospital visits as you focus on recovery.
At such a stressful and emotional time, the last thing you want to be worrying about is your finances. This is where critical illness cover can provide peace of mind. It provides a tax-free lump sum when you’re diagnosed with one of a wide range of serious conditions covered under your policy.
In 2019, insurer Royal London reported that the most common reasons for a Critical Illness claim were cancer (65%), heart attack (10%), and stroke (6%).
You can use the tax-free lump sum to:
- Repay some or all your mortgage
- Replace income if you have to take time off work
- Pay your monthly bills
- Repay any loans or credit you have
- Pay for any care you need.
Another key benefit of critical illness cover is that many insurers will often also cover your child for the same illnesses.
That means that if your child were to be diagnosed with a condition covered under your policy, you would normally be able to claim, typically, up to £25,000 or 25% of the amount you’re covered for, whichever is lowest.
3. Income protection replaces lost income if you’re unable to work
As the last year has shown us, falling ill and being unable to work for an extended period can happen at any time. Accidents can also occur unexpectedly, and broken limbs or surgery can leave you off work for weeks or months on end.
As of February 2021, Statutory Sick Pay in the UK is £95.85 per week. So, if you were unable to work through illness or injury, would you be able to provide for your family and child on this amount?
If not, then it might be worth considering putting some income protection in place. This type of cover provides you with a monthly sum – typically around 60% of your salary – if you’re unable to work because of illness or injury.
Most income protection has an “excess period”. This is the amount of time you need to be off work before your cover kicks in.
So, for example, let’s say your employer pays you full sick pay for eight weeks. Having an eight-week excess period, so your income protection pays out once you have been off work for nine weeks or longer, would ensure you continued to receive vital income.
Get in touch
As the exclusive London and south-east partners of MyBump2Baby, we’re here to give you honest, independent advice on any aspect of your finances.
We can help you to put the right protection in place for your family and give you the peace of mind that you and your loved ones will be financially supported in the event of any unexpected disruption.
To find out more, email email@example.com or contact us on 020 3828 8100.