Having a new baby and particularly your first baby is an exciting but also worrying time in any new parent’s life. The exhilaration of bringing a life into the world, coupled with the reality of the time management and financial implications, can be overwhelming. For many couples, finding financial security and obtaining peace-of-mind is the holy grail of parenthood. That is where investing in a life insurance policy comes in.
The Costs of a New Baby in Ireland
According to a recent survey carried out by the creators of Bepanthen Nappy Care Ointment, the average cost spent on a new baby in his or her first year of life in Ireland is €5,648. Furthermore, one in ten babies can cost their parents anywhere between €10,000 and €15,000 euro in their first year. Shockingly, four percent of Irish babies had in excess of €15,000 euro spent on them before their first birthday.
The Benefits of Life Insurance (Covering Major Costs)
When you become a parent, the financial consequences are high, but in the unfortunate event that one parent dies, they increase significantly. By investing in a life insurance policy, a huge number of major financial costs will be covered. Costs that could be covered (depending on an individual’s particular policy) could be:
• Your Mortgage – the primary expense for the average home owner, if one parent dies and the family has a life insurance policy that includes mortgage protection, this will cover the repayments. Where no life insurance policy is in place, the living parent may not be able to cover all of the repayments by themselves and end up defaulting on their mortgage and worst case scenario, losing their home.
• Your Childcare Costs – with the average cost of putting a child into crèche full-time running anywhere between €610 euros to well over €1,000 euros depending on location, demand and the particular crèche, costs can rack up very quickly. Having a life insurance policy in place will alleviate this cost, should the worst case scenario happen.
• Your Loans – if your loved one passes away and there are loans to be paid back such as a car loan for example, or the families credit card needs to be paid off, a life insurance policy may be able to cover these costs.
• Your Children’s Education – you might want to save for your children’s college fees, or their general back-to-school costs. With some life insurance policies, you might be able to include a clause for regular payments out of this policy rather than a lump sum, depending on your needs.
• Your Lifestyle – if you are a family where one parent has always worked full- time as the financial provider and one does not work (or works part-time), if the main financial provider dies, it can be incredibly difficult for the family to maintain the quality of lifestyle that they are used to. General costs such as food, utility bills, clothes and health costs can be a major burden. Having the security of a life insurance policy can go a long way to decrease this burden.
The Major Coverage Options for New Parents to Consider
While there are a myriad of life insurance policies to choose from and a variety of insurers, you need to choose the right one for your family. The only way to do this is to identify your priorities from the start. For example, if you have several children then you may wish to prioritise childcare and education as a major area to consider in your policy. While in the short term your policy might be higher than you might like, you cannot account for the peace-of-mind that it will offer you. Equally, if you have just one child, you can plan accordingly.
Mortgage Protection Cover
• This type of cover can be taken out on a single or joint life basis.
• It is only taken out for the term and the amount of your mortgage.
• As you pay back your mortgage, the coverage decreases accordingly.
• The policy premium stays the same for the set term.
• It is generally the least expensive form of life insurance.
Whole of Life Cover
• This type of cover gives protection to your family if you die.
• It is more expensive, but the premium stays the same for the duration of the policy. (Some older policies may have a review clause, except if you have chosen the indexation option.)
• This policy only pays out in the event of a death.
Term Life Insurance
• This type of cover is set over a particular timeframe.
• Your family will be paid a lump sum should you die within that timeframe.
• It is less expensive than whole of life cover due to the timeframe limitations.
• At the end of the term, regardless of your health, if the convertible option is chosen and you wish to continue with the same level of cover you can, with no health questions asked.
• If you want to increase your coverage, you may be subject to health questions.
A Joint or Dual Policy? There is a Big Difference
One of the final things to consider once you have determined your priorities and the type of coverage you want, is to ask yourself if you want a joint or dual policy. A joint policy will only pay death benefit once. If one of you dies, the policy ceases and the other person gets a lump sum, but is no longer insured themselves. Whereas, a dual life policy pays out on the death of both parents should they both pass away, meaning their children are financially secure. Dual life insurance is understandably more expensive as a result.
C & E Freeman Ltd trading as The Mortgage Shop, Easy Life Cover, TMS Financial Services is regulated by the Central Bank of Ireland.
Directors: Eamonn Freeman and Catherine Freeman. Company Registration No. 49757