Life Insurance For Parents
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Life Insurance For Parents
Life insurance policies provide regular cash payments (or a cash lump sum) to surviving family members should you pass away, allowing them to maintain their standard of living once you’re gone.
You can put life insurance payments in a trust or instruct your insurer to pay out a lump sum for your family to use how they like. Policies give you considerable control of where your money goes and how dependents use it after you pass away.
Why Life Insurance Is Important For A Parent
Most parents in their twenties, thirties and forties are looking forward to a long and bright future. After all, the average life expectancy in the UK is around 81 years.
But life has an unfortunate habit of not quite turning out how you expect. Every year, several thousand people under the age of fifty die from disease and accidents. And that means that a lot of families have to find ways to cope without one or either parent present.
Given these realities, paying into a life insurance scheme that will pay out if you (or your partner) were to suddenly pass away makes a lot of sense. If somebody dies and the family income dries up, you might have to live off state benefits or savings - and that could force massive material changes in your life, including where your children live. But with a life insurance policy behind you, you have protection, even if the worst happens.
Remember, financial problems aren’t the only concern that families face when an income-generating caregiver passes away. Disruption can cause stress, health problems and can force a change in location that rips children out of their current schools and nurseries.
Protection For Your Family
You can think of life insurance as a kind of protection for your family and children should you pass away. It allows your surviving dependents to maintain their current lifestyle, by providing a cash payment that covers your existing costs (and sometimes more).
Many families view life insurance as an essential part of their financial planning. If either parent were to die unexpectedly, the surviving caregiver would need additional funds to keep the family unit going. They wouldn’t want to deal with both grief and financial hardship at the same time. The emotional stress could lead to long-term damage for both the surviving partner and the children.
Life insurance is a tool that you can use to ensure that your family continues to live in the manner to which they’ve become accustomed even if you die. You can think of it as a lifestyle protection strategy that can take your place when you’re gone.
The level of protection you choose for your family depends on your current outgoings, as well as the costs they will likely face in the future. As a general rule of thumb, you’ll need ten times your household’s annual income in cover if you are a new parent, with less as you get older.
Life Insurance For Single Parents
As a single parent, you need to think carefully about how your surviving children would fare if you weren’t around to look after them. They could face financial hardship if you were to pass away suddenly.
When neither familial parent can take care of a child, most UK children find homes with foster carers or guardians. These caregivers do their work as an act of charity, or perhaps receive small payments from the state, but they don’t usually have high incomes.
Because of this, they may not be able to provide your children with the childhood you would like them to have. For instance, your surviving offspring might miss out on school trips or the chance to get private music lessons.
Life insurance provides essential supplemental income for foster guardians, providing them with the extra cash flow they need to spend on activities that give your kids a well-rounded and enjoyable childhood. Life insurance cover eliminates the risk of child poverty and provides a steady stream of income for future caregivers to use according to your instructions.
Putting your life insurance into a trust can exempt you from inheritance tax, depending on your particular situation. And it can also ensure that your children get access to money you leave faster than standard methods.
Single parents should ensure that they write a will under the supervision of a legal professional. Wills define how your executor should distribute your assets, including any life insurance policies you own. Single parents would be best of looking for a straight forward term life insurance.
What Life Insurance is best for new parents?
New parents have a choice of three types of life insurance, each one offering a slightly different form of cover.
Level term life insurance allows you to specify how long you would like your policy to last, and the amount that it will pay out, should you pass away during the term.
This type of life insurance is the easiest to understand because it shows you the exact amount that your dependants will get. So, for instance, if you choose a policy that pays out £150,000 when you die, it won’t change, no matter what happens to your mortgage or other liabilities.
Decreasing term payments decline the closer you get to the end of your insurance term. So, for instance, the insurance company might pay £150,000 to your dependents if you die in the first year of the policy, but only £50,000 if you die in the last.
Decreasing term life insurance policies are sometimes called “mortgage life insurance” because their value declines over time. While this feature might sound like a negative, it can be a bonus for many families.
New parents earlier on in their lives typically need more cover than their older counterparts. That’s because they have more of their mortgage to pay off and more years of lost income ahead of them, should they die prematurely. And older parents stand to benefit from decreasing term policies because premiums tend to go down, the less cover they require.
In general, decreasing term life insurance is cheaper than level term, and can be great for new parents on a budget. However, if you remortgage your home or take out a bigger one, then your existing policy may not cover you, especially towards the end of the term. Why not check out our decreasing term life insurance calculator and see how much it will cost.
Critical illness insurance policies pay out a fixed sum if a medical professional diagnoses the policyholder with a serious illness. You can take out life and critical illness cover as a standalone policy, or combine it with level and decreasing term life insurance policies.
Critical illness cover is valuable because it provides you and your family with an income, should you become seriously sick and be unable to earn. Combining it with a life insurance policy ensures that you and your family will receive the full benefit of your cover, even if you haven’t passed away, again preventing financial difficulties if you can’t work.
The best life insurance policy for new parents depends on your individual needs. Level term policies are helpful for parents wishing to provide a high income to surviving dependents, regardless of when they die. Decreasing term life insurance is great for new parents on a budget who want high cover now, and lower cover in the future. And critical illness cover is a policy you can add to your existing policies, or simply slot alongside them that will pay out if you get sick and can’t work.
New parents should carefully consider all three to determine which is best for their circumstances. If you’re not planning on moving for a long time, then decreasing term life insurance policies could be the optimal choice. If however, you are planning on moving or work in a hazardous environment, then you may wish to consider level term or critical illness life insurance.
Child Cover Included With Life Insurance
Some insurers bundle child cover with life insurance to provide more complete protection, should something go wrong. Others offer it separately. Whatever the setup, having such a policy can protect your family and keep your finances secure, should the worst happen.
Child life insurance is a policy that pays out if a child passes away or develops a serious disease listed in the policy’s terms and conditions. Even though children are not breadwinners, taking out such a policy offers significant financial protection for parents.
For instance, if one of your children becomes seriously ill, you might have to look after them at home. While some employees offer paid leave, most will cut off funding after a given period, according to their statutory rights, leaving parents struggling to make ends meet.
Child cover included with life insurance could be the financial lifeline your family needs. It provides you with the necessary income to take time off work and care for your child.
Child cover also pays for medical care. Many childhood diseases are costly to treat and public healthcare providers might not offer the best medicines. If you didn’t have cover, you might struggle to finance these expenses. But with child cover, you can use payouts to finance private treatment and carers to take care of your child.
Child cover also assists with funeral costs should they pass away.
The most common form of life insurance for children is called “rider” insurance, which is where you add child cover to your existing policy. Doing this increases the premiums (because the insurer faces more risk), but it also provides your family with more protection.
Another type of life insurance for children is called term insurance. Here, you pay a fixed monthly premium for your child for a given length of time - usually five to ten years or until they reach adulthood - and receive a payout designed to cover funeral costs and other expenses if your child passes away during this term.
Lastly, you could investigate child assurance, sometimes called “baby life insurance” or “baby insurance.” These policies are similar to regular life insurance schemes but stay with your children into adulthood. Under the terms, your child can get sick a long time in the future when they are an adult, and life assurance will still cover them. Please note, however, that this type of policy is rare.
When choosing life insurance cover for your children, you’ll need to consider many of the same questions that apply to regular life insurance policies. You’ll need to define who you want to cover and how much you want, both for you and your partner, and the child. You’ll also have to set the term for the policy. The older both you and your child, the fewer options you’ll have.
Please note that some children are not eligible for cover. UK insurance providers will usually set age restrictions on policies, only covering children under a certain age, say 21 or 18. Usually, you can’t add adult children to your existing life insurance policy. They will need to take out their own.
Joint Life Insurance For Parents
The cheapest way to take out a life insurance for parents is via a joint life insurance policy. This is a policy that covers both parents and will pay out on a 1st death basis. This means there is only one pay out for one parent. Once a payout has been made the contract is over.
How Much Cover Do I Need?
When considering how much protection you need for your surviving dependents, you’ll need to consider all the costs associated with raising your children and maintaining a solvent family home.
As a general rule of thumb, most families take out around ten times their annual income. However, this figure can vary considerably, depending on your monthly outgoings.
Direct costs could include:
- Educational costs: Private schooling can be expensive and difficult to maintain if a parent passes away. Boarding fees are frequently five-figures. But even if you send your children to state schools, you still face costs. Books, school uniforms and school trips all require spending money.
- Childcare costs: Parents frequently use child care to care for young children while they are out at work. When both parents are generating income, fees are manageable. But if one parent can’t earn money, either because they are sick or deceased, the remaining parent can begin struggling financially.
- Everyday costs: Parents also need to pay for everyday costs associated with raising children, such as putting food on the table, buying toys, and going for outings in the car. While these costs are manageable when family income is high, they can become difficult to sustain on a single income, or none at all.
- Annual expenses: Annual expenses include Christmas presents, Easter eggs, and Halloween decorations. It also encompasses the cost of kids’ parties.
When deciding how much cover you need, you should also consider your indirect costs - necessarily expenditures that both you and your family require to maintain a high standard of living. These could include mortgage expenses, utility costs, car expenses (for the remaining parent), and interest payments on outstanding debts.
There are additional expenses that you might face too. Funeral costs, for instance, can run into many thousands of pounds. You might also need critical illness cover to protect you if you suddenly become ill and unable to work. Insurers usually cover a list of “core” diseases such as cancer and heart disease. But you may have to pay higher premiums if you want to cover a broader range of diseases, including rare inherited conditions.
Combining multiple types of cover often allows you to lower your overall premiums and get better value for money. So if you take out life insurance plus a funeral plan plus critical illness cover, it is usually cheaper than buying each of them separately from different providers.
The amount of cover you choose to take out for each partner usually corresponds to their annual earnings. The main breadwinner requires more cover than a parent who only works part-time.
Life insurance pay outs fall into two categories.
- Income-replacement life insurance simply pays your surviving family members a fixed cash sum every month to replace the money you brought home.
- Full cash sum pay outs providing all the money at once, covering both current and future payments.
Getting cash sums paid into a trust provides you with a way of determining how your family uses your funds once you’re gone. It also gives you the power to set when your children can access the - perhaps when they reach the age of 18.
Can I Get Life Insurance for My Parents?
The simple answer to this question is “yes” you can get life insurance for your parents (similarly to how you can get cover for your kids). This type of cover protects you if they were to pass on a financial loss in the event of their death (called an “insurable interest” in the insurance industry).
The costs associated with the death of an elderly parent can be considerable. Medical costs, care bills and funeral fees can soon add up. And as next-of-kin, you may have to pay off an outstanding mortgage or other unpaid debts connected to their estate.
Fortunately, life insurance for parents protects you against these fees, as long as the parent concerned dies or becomes sick during the policy’s term.
Before you take out life insurance for your parents, you’ll need to get their permission. Explain to them the benefits of taking out the policy and how it will help to protect you from unwanted financial repercussions should the worst happen.
During the conversations, ask them if they have ever taken out a life insurance policy in the past. If they have, that means that they probably already have protection and you won’t be on the hook if they suddenly pass away.
You can also ask them for access to their financial records. These documents will provide you with an insight into their current financial situation and show you whether they are solvent or if they are going to leave you saddled with debt, should they pass away.
Finally, you should talk to them about the need to take out a will. If they haven’t created one yet, recommend that they visit a solicitor who can create a legally-binding one, detailing precisely who should get which assets. If they have will already, find out the name of the executor and where it is being kept. The will should detail things like financial requests, funeral arrangements and trusts.
To take out a life insurance policy, the insurer may ask your parents to disclose medical information. They may also ask for the name and address of your doctor or healthcare provider to verify any statements they provide.
How much you’ll pay when getting life insurance for your parents will depend on the type of cover you will need once they are gone. For instance, you may only need to protect yourself against funeral expenses - in which case, premiums will be low. However, if your policy needs to cover outstanding debts and mortgages (so you don’t have to sell their home when they die to release the equity), then you may need to pay more.
Whenever you are considering adding parents to your life insurance policy, you should use an online calculator to work out how much it is going to cost. Higher premiums are sometimes necessary if the risk is considerable.
Choosing a plan for your parents is quite straightforward. Generally, you have two options: whole life or term insurance.
Term insurance is where you pay into a policy for a set period agreed with your insurer and then receive a cash guaranteed cash pay out if they die during the period set out in the policy document. Whole life insurance will continue to pay out, no matter when they pass away, providing you with protection whether you’re paying a premium or not.
If your parents are already old or sick, you will pay more on your premiums. If they’re younger and healthier, you will pay less.
Which of these policies you should choose depends on your circumstances. If you don’t know when your parent is most likely to pass away, then it is usually better to go with whole life insurance, as this covers you, no matter which path their health takes. By contrast, if you think the risk is highest over the next five to ten years, you may wish to take out a term policy to cover your expenses.
Discount Life Insurance…Why Use Us
We are an online advice service and as such have little overheads which enables us to give away more commission enabling us to me extremely competitive on price.
Having said all this, life insurance is not always about price and there are differences in the types of cover offered by providers. So we also provide an “advised sale” which means that we take on responsibility to make sure the policy you take is the right one and the most suitable for your circumstances.