Q: I’m due my first baby soon and I’m getting excited but I’m worried about my child if something were to happen to me. How do I protect my child and relieve some stress?
Firstly, I’d recommend taking a look at Life Insurance (and then talk to a solicitor about a Will)
New parents are ignoring life insurance and very few are taking out or reviewing their life insurance policies. And that could be a terrible mistake.
First-time parents are taking a big gamble, many not taking out life insurance or reviewing their existing protection in preparation for the birth. What’s perhaps most alarming is that it’s not simply a matter of cost. In fact, pre-baby spending is up with many admitting they had bought things they don’t need or use.
So why is ignoring life insurance such a potentially costly mistake?
Who Needs Life Insurance Cover?
Life insurance is an insurance policy that pays out to your loved ones should you die within the term of the policy. Now, it’s important to recognise that not everyone actually needs life insurance.
To establish whether life insurance is essential for you, you simply need to ask one question: if I die, will my loved ones be hurt financially? If you’re married or share a mortgage with a partner or friend, life insurance is clearly a must, or else they will be left to try to pay it off without you.
Similarly, if you have children, there will be added financial pressures if you die and don’t have a life insurance policy in place. This applies to stay-at-home parents too. If you died, your partner could have to pay for additional childcare, for example.
How Life Insurance Works
Life insurance comes in various shapes and sizes. So let’s focus on the main types.
Level term assurance means your loved ones will enjoy a flat pay-out, no matter when you die within the term of the policy. So if you have a €100,000 policy over a 40-year term, it doesn’t matter if you die in year two, 22 or 32, because the pay-out to your family will be exactly the same.
Decreasing term assurance means that the pay-out decreases with each year of the policy. So if you die in year two, they’ll get a much bigger pay-out than if you die in year 30, for example. This is the type of life insurance that’s most popular for people with mortgages, as it shrinks alongside your outstanding mortgage debt. It’s also cheaper than level term assurance.
Family Income Benefit works a little differently. Rather than a single, large pay-out, your loved ones will get a monthly or annual income from the policy. You can also ensure the pay-out is index-linked, meaning it rises in line with inflation. Best of all it can work out far cheaper than traditional life insurance.
How Much Does Life Insurance Cost?
That brings us neatly on to the subject of cost. One reason many people ignore life insurance – and all other protection products, for that matter – is because there is a perception that it’s an expensive insurance to have.
That’s not actually true though. It can cost as little as €10 a month, which really isn’t much for peace of mind.
For example, a couple both aged 30 and non-smokers taking out €100,000 of joint life decreasing term cover over a 30-year term would pay a paltry €10.82pm a month.
How Much Do I Need?
Working out exactly how much life insurance cover you need is a big consideration. You don’t want to underinsure, as you’ll leave your loved ones struggling once you’ve gone. But equally you don’t want to get too much cover as you’ll be paying more than you need to.
For more on how to get the right policy for you, and keep the costs to a minimum, contact a Financial Broker.
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