Would your family cope without you financially? What would happen if you were diagnosed with a serious long-term illness, or even if you died?
Understandably, these aren’t the kinds of questions we tend to dwell on as we prepare to welcome a new baby, or we enjoy the first weeks and months of our child’s life. But perhaps they should be. We might not want to think about them, but securing your family’s financial future - come what may - is an act of love. It says we want the very best for our children, regardless of circumstances that we can’t always foresee.
That’s what the rest of this guide is all about. We’ve got together with Tom, the life insurance specialist for dads, to tell you everything you need to know about buying life insurance.
How many dads have life insurance?
Quite a lot of us prefer to put our heads in the sand. Recent research found that 4.5 million fathers in the UK with dependent children have no life insurance. In addition, only 18% have a critical illness policy, despite a fifth of dads saying their households would not cope financially if they lost their income due to long-term illness.
That’s a serious finding. On average, it takes £185,000 to raise a child to the age of 21 in a single parent UK household. Imagine your partner having to find that kind of money without you, on top of all the other household expenses. Would your family manage?
The fact is, unless you’re in an incredibly fortunate financial position, life insurance isn’t something you can do without. The good news is that it can be simple to arrange, and it needn’t be expensive. In fact, a recent poll found that many UK parents think life insurance is four times more expensive than it actually is.
If you’ve just had a child, or you’ll become a dad soon, now is the time to act. Of course, we get why you haven’t: you already have loads to do and loads to think about. But don’t let sorting life insurance slip to the ‘never never’ section of your priority list. Ten minutes now could save you years of low level anxiety. Guaranteeing your family’s financial future is a path to real peace of mind.
What a good life insurance package should offer
After that, the whole point of life insurance is that it pays out a lump sum if you die, or the same amount in regular payments. The precise amount depends on how much you pay into the policy. It’s quite common to take out life insurance worth £150,000, which - given that the average mortgage debt in the UK is £130,000 - will probably pay off your family’s mortgage and leave a little left over for emergencies.
How much cover will you need?
So in effect, life insurance offers what you want it to offer. If you’re the main bill payer in the house, it’s worth doing a basic calculation of everything you pay for in a month, and basing your cover expectations on that. Remember to include mortgage repayments or rent, utility bills, monthly costs of living and childcare costs if applicable. It’s also worth including funeral costs - these can be significant and they’re something your family will be expected to pay for.
It’s also worth noting what life insurance won’t cover. To be blunt, it usually only covers death. If you want cover for loss of income due to long-term illness, you will probably need critical illness cover as well. You can often take out the two together as a cost-effective package.
And - as ever - remember to read the small print. Most policies have things they won’t cover you for, even if you die. For example, some won’t pay out if you die from drug or alcohol abuse. Oh, and if you participate in extreme sports, make sure you mention it when applying for a policy. You might have to pay extra to cover your love of skydiving or speed boating.
Finally, the sooner you take out life insurance, the better. The younger you are, the lower your premiums, basically because young people are less at risk from serious illness than older counterparts. Some policies won’t cover death from illnesses you already have, so act now for the best deal and the most comprehensive cover.
Life insurance buyer’s guide: the 6 steps to peace of mind
1. Work out what you need
As we mentioned earlier, your first job is to work out what your family will need to live on if they no longer have your income. Include all relevant expenses and the number of years the money needs to cover.
2. Work out the type of life insurance you want
There are two main types of life insurance. Term life insurance runs for a specified term, be it 5, 10 or 25 years. It pays out if you die within that term, but there’s no lump sum at the end if you don’t. Whole life policies pay out whenever you die, as long as you’ve kept up payments.
Choosing between the two is really about your preferences and whether, at some point in future, you feel the money you pay in premiums every month might be better spent elsewhere. You could pay into a term policy just until the children are grown up, or have the reassurance of knowing that you can provide an income for your partner whenever they need it.
3. Consider other insurance
As we’ve said, life insurance only pays out if you actually die, not if you can’t earn for other reasons. You might get a better deal if you bundle insurance policies together (i.e. you might get a discount if you take out both life and critical illness cover with the same company) so it’s worth thinking about that before your application, or chatting it through with the agent during the call. As well as critical illness insurance, which pays out a lump sum if you succumb to serious illness, you can also get income protection insurance, which provides regular payments if you’re unable to work due to illness or injury.
4. Apply for your cover
The next step is far easier than you might imagine. Applying for life insurance with Tom, for example, is just a case of filling in a simple form and having a quick phone chat with an agent. Tom will then search a wide range of insurance partners to find the policies and quotes that best suit your needs and budget. All of this is free.
So why the phone chat? The Tom team says:
5. Be honest
During the application, you do need to be honest. The only reason insurers refuse to pay out is if they find out you lied on the application. So if you smoke and don’t mention it, and then die of a smoking-related disease, your family could be left without the money they need.
The price you pay every month will depend on a few factors, like age, health status and lifestyle (including smoking), so the younger and healthier you are the cheaper it will be. But don’t worry if you’re a bit older. Life insurance is still usually good value. It can cost as little as a few pounds per month.
6. Other factors
There are other factors to consider, but they only apply to some dads. For example, you may want a more comprehensive policy if your job is a bit more dangerous than the norm, like working at height. Similarly, if you have a pre-existing medical condition premiums may be a bit higher, but in most cases you should still be able to get cover.
The main thing to remember is that, whatever your situation, getting life insurance is usually quick, simple and hassle free. Make a few basic calculations, work out what you need, get some quotes and make a decision. Then get on with your life.
With life insurance, the clue is in the name. This isn’t about death, it’s about life, and being able to live yours with one less worry in mind. When you know that your family will always be financially looked after, regardless of what the future holds, you can focus on enjoying the great adventure of parenthood, sleepless nights, dirty nappies and all! Sort it now and forget about it.