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Why it’s essential to have life insurance

If you are a parent or are about to become one, you may be wondering if having life insurance is something you should consider. Significant life events such as moving or becoming a parent tend to make us think about what we should be doing to protect our family. With so many other outgoings every month, you might also be wondering if it’s something you need to do right now? Or something that can wait a few years?

Financial planning

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You’ve got budgets for food, clothing, and everything else your children may need. Still, it’s also essential to plan for the unexpected situation of your family losing a parent and the income they provide. Consider how your family finances would be affected without your income. If they would experience hardship, then it’s important to take action to protect them if the worst happens.

We believe that all parents should have a life insurance policy to protect their young families. Aside from the financial benefits, it will give you peace of mind that they will be taken care of and be financially sound should something happen to you. It’s hard to believe, but around 50% of parents across the UK do not have a life insurance policy.

Yet, many families also admit that they would struggle to pay their living expenses should the household’s main breadwinner die. In this article, we will look at what life insurance for parents is, why you probably need it and talk about the costs involved so you can make an informed decision to protect your family:

What is life insurance for parents?

In the event of a parent’s death, life insurance provides a monetary payment to the nominated beneficiary. The purpose of this money is to support your family after you are gone. For example, your family could use the money to pay off the mortgage, pay daily expenses that you previously would have covered with your salary, or fund their future education. You can nominate the beneficiary of your life insurance. In most cases, this will be your surviving spouse or one or more of your children.


How does it work?

The mechanics of life insurance for parents is fairly straightforward. You pay a monthly premium (payment) to your insurance provider. This premium will be determined by several factors including, your age and current state of health. Then, if you die during the policy term, your family will receive a payout. This payout is intended to help them manage financially after your passing.

The payment could be in the form of a one-off lump sum or it could provide a regular income depending on the type of policy you have selected. The types of cover available to protect your family are as follows:

Level term life insurance

This type of policy pays out a guaranteed amount if you die within the policy term. This is irrespective of when you die or how close it is to the policy’s start or end. The payment your loved ones receive will not change. When setting up the term life policy, you will be able to choose how long you want it to run for. This could be until your mortgage is paid off or until your children reach adulthood and leave home. Level term insurance provides you with the peace of mind that your family will receive a guaranteed amount during the life of your policy.

Decreasing term life insurance

Also referred to as mortgage term cover. For parents whose primary concern is making sure the mortgage is paid off if they die, decreasing term cover provides a cheaper alternative to level term cover while still offering your family financial support if the worst happens. The decreasing term means that the payment your loved ones will receive decreases over time in line with how much is left on your mortgage.

If you die during the policy term, your spouse will be able to pay off any mortgage on your home, but it will not provide them with any surplus finances to help them pay towards other life expenses.

Whole life cover

As you may have guessed from the name, this type of life insurance will provide cover for the rest of your life. With this cover, your family will receive a payout in the event of your death that will not decrease in value over time. Whole life policies are not linked to your mortgage or a fixed term. As long as you continue to pay your premium, you will be covered for the rest of your life.

Increasing term

With increasing term life insurance, the amount your beneficiary would receive would increase over time. This increase is usually yearly and in line with current inflation rates. It is designed to help families cost with the ever-increasing costs of living.

In addition to any life insurance policy, several other insurance policies are designed to help support your family if you die or become seriously ill in the future. Usually, these can be purchased as a stand-alone product or commonly incorporated into your life insurance policy:

Death in service cover

This pays out if you die during your employment. Many employers offer this as part of their benefits packages. In most cases, the benefit amount is a multiple of your salary, usually two to four times your annual wages. Before taking out a separate cover, it is worth consulting your employee benefits paperwork or asking your employer how much death in service cover you already have.

Critical illness cover

Most insurers offer this as part of a life insurance policy. If you receive a diagnosis for any of the conditions stipulated in the policy, for example, cancer, or if you suffer a heart attack or stroke, you will receive a lump sum payout. This is designed to help cover your financial obligations while you take the time to come to terms with your condition and focus on recovery. For a family with young children, this can take a lot of financial pressure off the parent and allow them to provide a good standard of living for their children and seek the medical treatment they need to get better.

Income protection

Income protection pays you a regular income (as laid out in your policy) if you are made redundant or become too ill to work or suffer a severe injury that prevents you from returning to work. The cover is intended to help you cover your family outgoings, so you do not experience hardship due to your illness or injury.

With income protection, you do not need to have received a specific diagnosis as you would with critical illness cover. You must simply be unable to work. However, it will not pay out if you leave the job of your own accord or are fired. Insurers won’t pay your entire salary. Instead, it will be a pre-agreed percentage, for example, 50-70% of your take-home pay from your employment.

Do I need life insurance for my family?

If you are a parent and your partner or children would struggle financially without you, you need life insurance. Regardless of if your children are one or sixteen years old, they will still need financial support if you die to meet the increasing living costs. It’s a common misconception that only parents who have a mortgage need life insurance. While it’s true that life insurance is designed to help pay off a mortgage in the event of your death, it can be used for other expenses, including the cost of living and the cost of bringing up a child and can also be purchased by individuals who are not yet homeowners.

If you are looking to take out life insurance to protect your family’s future, please click the link below to be taken to a form, where we will collect a few details before passing your details over to an expert life insurance specialist.

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1. We understand equity release isn’t for everyone, and we’ll never say it’s the right option for you, that’s why we pass you onto an Expert.

2. A lifetime mortgage is a loan secured against your property. With a lifetime mortgage there are typically no monthly repayments to make as the loan, plus roll up interest, is repaid when the plan comes to an end. Usually, that’s when you, or the last remaining applicant, either passes away or moves into long-term care.

3. With a lifetime mortgage you’ll still retain full ownership of your home.

4. Equity release will reduce the value of your estate and may affect your entitlement to means tested benefits.

5. Mortgage Advice Bureau Later Life offer lifetime mortgage products from a carefully selected panel of providers.

6. Unless you decide to go ahead, Mortgage Advice Bureau Later Life’s service is completely free of charge as their fixed advice fee of £1,295 would only be payable in completion of a plan.

7. ClearKey is an independent marketing website which only acts as an introducer to companies who offer advice on various financial plans, products and services.

8. Our partners are authorised and regulated by the Financial Conduct Authority.

9. ClearKey.co.uk are not authorised to give any advice and we are not liable for any financial advice provided by or obtained through a third party.

10. Life insurance products attract terms and conditions. Price information contained within this website are for illustration purposes only. You will receive a full policy document upon application which will set out the terms, conditions and limitations of cover provided under the plan.

11. Your home may be at risk if you do not keep up repayments. Think carefully about securing debt against your home. When consolidating existing borrowing be aware that extending the term could increase the amount repaid.