Life Insurance for New Parents and Young Families

Parenthood is an exciting and scary new adventure. There’s a lot of things to consider and organise. You may have already drawn up a budget and perhaps accumulated some savings. But, to truly ensure your children are financially protected should the worse happen, you might want to consider life insurance.

A life insurance policy that meets your requirements provides financial support from unforeseen life events, such as death, illness an injury. The benefit payment can help you pay off debt, cover day-to-day living expenses and provide for your child’s future educational needs.

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When should new parents consider life insurance?

Reviewing your insurance needs forms a critical part in starting and expanding your family. Generally, as a woman, the best time to purchase or upgrade your insurance is before you get pregnant, to ensure your premiums won’t be affected by pregnancy complications.

When children are young, they often need a lot of your time. If either you or your spouse were to pass away, it would take a toll on the surviving family members, both emotionally and financially. The payout from a life insurance policy could help you:

  • Hire someone to take care of your children,
  • Replace lost income,
  • Pay your mortgage and outstanding debts,
  • Pay for school fees and other future educational expenses,
  • Pay for every-day costs, like nappies, food and clothing.

What kind of life insurance is best for families?

Not all life insurance policies cover the same things. You might want death cover, as well as a policy that replaces your income should you be unable to work due to a sickness or injury. The type of insurance you need depends on your family’s unique requirements. The life insurance products you might want to consider include:

  • Term life insurance: Pays a lump sum death benefit to your nominated beneficiaries when you pass away or get diagnosed with a terminal illness. This benefit could help your family continue the lifestyle their accustomed to.
  • Children’s insurance: Might be a built-in benefit or an optional extra. This type of insurance generally covers your child for accidental death and specific injuries or illnesses.
  • Total and permanent disability cover: TPD provides a lump sum payment when you are confirmed to be totally and permanently disabled. The benefit payment can help you pay for medical costs and adjustments to your home and car, as well as provide you with a future income.
  • Trauma insurance: Protects you against serious illnesses and injuries by paying a lump sum benefit when diagnosed with any of the critical illnesses listed in your product disclosure statement (PDS). The benefit can be used to pay outstanding medical bills, replace lost income or hire someone to help with household duties.
  • Income protection: Pays a monthly benefit of up to 75% of your regular income when you can’t work for longer than your waiting period due to an illness or injury. Income protection provides you with a salary so you can focus on recovering.

How to choose the best life insurance for new parents

Your choice of family life insurance plan should ultimately depend on your requirements and how much you’re willing to spend. You might want to consider your family dynamic, for example, the size and age of your family and whether both parents work or one is the primary breadwinner and the other a stay-at-home parent.

Think about the type of life insurance you need to protect your family. Perhaps term life insurance makes the most sense with a young family to provide peace of mind knowing your little ones will be supported when they need you most.

If you’re more concerned about replacing your income should you become ill or injured, then income protection and/or TPD cover might be more suitable.

Request the help of an insurance broker to assist you in choosing adequate coverage to protect your family.

How much cover do you need?

A growing family means additional expenses, so you’ll want to make sure your life insurance policy provides enough coverage. The cost of having children in Australia is, on average, between $140 and $170 a week, according to the Australian Institute of Family studies (2018).

There are various things you’ll want to consider when calculating your cover amount to reflect the value of everything you contribute to the household, including:

  • Your income: Generally, you’ll want your life cover benefit to payout at least 10 times the value of your annual salary.
  • Mortgage payments and outstanding debts: The amount paid out should significantly reduce your mortgage and any other existing debts.
  • Childcare and education: If you’re a two-parent household, consider the cost of a nanny or daycare. Also, providing your child with an excellent education is a priority for most parents, so you might want to think about the ongoing cost of education.
  • Living expenses: According to ASIC’s MoneySmart, the average grocery bill for a young family, with the youngest child under five years old, totals $1,833 per week. These stats were for 2016 and seeing as prices rise yearly, you should probably budget to spend at least 10% more per week.

How much does life insurance for young family’s cost?

The price of your life insurance depends on a range of factors, including the type of policy you choose, your cover amount, your age, gender, health and smoking status. A good way to help you find affordable insurance is to shop around and compare similar policies from some of Australia’s major brands.

You might want to purchase insurance while you and your partner are still young and healthy, as premiums generally get more expensive the older you are because statistically, you are more likely to get ill, injured or pass away.

Who should you name as beneficiaries?

Generally, parents name each other as beneficiaries to receive the lump sum payment should one of them pass away. Young children can’t collect the death benefit, and the courts might appoint a custodian. Instead, you might want to arrange for the benefit amount to go into a trust which your child can access when they are a certain age.

Frequently Asked Questions

Do both parents need life insurance?

You should contact the insurer to request a copy as they are required to retain these to ensure they can meet their policy obligations.

Should new parents get joint life insurance?

While a joint life insurance policy might save you money, it could get complicated should you in future decide to divorce. Joint plans have various benefits and drawback you need to consider.

Should you buy life insurance for your child?

Various life insurance companies offer life insurance and trauma cover for children between the ages of 2 and 15 years old, as an additional option to your insurance policy. This type of insurance generally covers your child for death and specific illnesses, like heart conditions and brain disorders. Whether you should purchase child insurance is up to you.

Can you get life insurance while you’re pregnant?

Yes, you generally can get life insurance while you’re pregnant. Usually, the insurer will ask you questions about what trimester you’re in and whether you’ve experienced any complications. However, each insurer has their own underwriting guidelines.

Published: October 17, 2019

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