Financial Tools to Consider When You Have Kids

When you become a parent, you suddenly gain a responsibility like no other. Not only are you responsible for yourself but now you are also responsible for a small person who depends on you for everything. It’s a journey that is exciting and scary in equal measures, and you are likely to have a huge shopping list of child-related expenses, whether it’s baby essentials or next terms school uniform.

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Financial protection for your family and other financial tools may not factor high on your priority list, but you should take some time to consider what you would do if you lost your job, were injured in an accident or fell ill. It’s not something we want to think about early in our children’s lives. However, taking action early to put the necessary protection in place can reduce stress and worry further down the line. Here we look at some of the financial products you may want to consider to protect your family’s financial future.

Life insurance

If you are the primary income provider for your household, your family could well struggle financially without you. No one likes to think about passing away. However, a life insurance policy could protect your family if the worst did happen. A life insurance policy will pay out a pre-determined lump sum in the event of your death. As the policyholder, you can select how much your loved ones will receive, which will affect the premium (the monthly payment).

Life insurance policies can be tailored to your families’ specific needs. To work out how much coverage you need, here are some expenses you might want to factor in:

•  How much is required to pay off the mortgage
•  The monthly running cost of your home, including utility bills
•  The predicted cost of childcare or school fees. Including uniform, books and equipment.
•  Every day expenses such as food, travel, clothing and activities.
•  Yearly costs such as festive celebrations, birthdays, and holidays.

The amount should be sufficient to keep your loved ones financially secure after your death. You may want to use an online calculator or seek the advice of a financial specialist to help you work out how much cover you need.

You can speak to an expert life insurance provider via our forms here.

Life insurance products can be segmented into three types:

Level term cover

You choose a payout value and the policy’s term, if you pass away within that term, the policy will pay your loved ones. With this option, you can be sure exactly how much your dependents will receive, and it won’t change over the policy’s life.

Decreasing term

This can help your dependents cover debts that will decrease in value over time—for example, a mortgage. If the policyholder dies at the beginning of the term, the payout will be greater because the debt is at its highest. Towards the end of the policy term, the payout will be lower because there is less debt to clear and outgoing expenses are likely to be lower.

Whole Life Cover

 This type of cover will guarantee your dependants a payment regardless of when you pass away. The other types of cover mentioned above will only payout if you die before the stimulated term on the policy. Whole life insurance policies tend to be more expensive because of this. Once set up, you’ll make monthly payments for as long as you want the policy to last. However, some insurers you might not need to continue making these monthly payments after you reach a certain age.

Critical illness cover

Critical illness cover can be added to either of the above types of life insurance or purchased as a stand-alone product.

Being diagnosed with a critical illness can put families under a lot of stress. You will likely have to make some changes to your family life and work. After a diagnosis, you may need to take time off work or completely give up your job. Critical illness cover can pay out a lump sum amount if you are diagnosed with a condition named on your policy. It can mean that you can still cover your families expenses while you come to terms with the outlook of your diagnosis without putting any additional stress on your family.

Income Protection

Have you thought about how your family would manage if you had to take off work because of an illness or injury. Income protection is designed to help when these unexpected events happen that could put your family under a considerable amount of financial stress. Income protection insurance will pay you a monthly income to get you through the period of hardship so you can concentrate on getting better or getting back into the workplace.

Write a will

In addition to considering life insurance, you should also consider writing a will and naming a power of attorney to protect your families finances. Writing a will is the only way you can guarantee your assets will be passed on in accordance with your wishes. Without a will your family could face the following issues:

• Your spouse or partner may not automatically inherit everything.
• If you are not married, your partner will not inherit anything.
• The local authority could decide your children’s guardianship
• Any step or foster children will not inherit anything.

As part of the will writing process, you will name a legal guardian for your children should something happen to both parents. Without this, it could be left to the local authority where to place your children. You can also set out arrangements for covering your children’s expenses in the short and long term.

Making sure your family are financially looked after once you become a parent is an important step. By selecting the right products now, you can save yourself a lot of stress and hardship later should something happen, which leaves your family financially vulnerable. Our team can help you select the right products and level of cover for your family and ensure their financial security so you can enjoy time with your family without the worry of what is around the corner.