What would your children’s financial future look like if you fell terminally ill or passed on today?
Like taxes, passing away is inevitable, even though it isn’t the most comfortable subject to discuss. The demise of a family’s sole breadwinner creates a void that’s difficult to fill.
As a parent, it’s a good idea to make smart financial decisions to secure your family’s financial future should something happen to you unexpectedly. Taking out life insurance is one of the most invaluable financial decisions you can make today.
But with so many misconceptions about life insurance, it’s easy to ditch the idea and spend your hard-earned money elsewhere. Here’s what parents should know about life insurance.
What Is Life Insurance?
Life insurance is a type of policy that pays out a predetermined amount of money to your beneficiaries in the event you’re diagnosed with a terminal illness or pass away during the contract period. Typically, the beneficiary is your surviving spouse and children. But you might also want to cover other members of your family such as parents and siblings.
The policy gives you peace of mind knowing that your loved ones will get a financial benefit should the worst happen. It allows you to support your family even in your absence. The money can be used to cater for all expenses that you used to pay with your earnings.
How Does Life Insurance Work?
With a life insurance policy, you pay monthly or annual premiums to the insurer in exchange for the agreed level of coverage. Coverage amounts vary depending on the insurer, your financial situation, and your health. You’ll be required to pay your premiums on time in order to maintain your life insurance.
Should you pass away during the policy term, the insurance company pays out money to whoever you named as your beneficiaries. There’s a choice to receive the money either as a single payment (lump sum) or in regular instalments (annuity). In most cases, you have control over the policy and can tailor it in a way that best protects your family.
Types of Life Insurance Available To Parents
There are two main types of life insurance for parents: Term Life insurance and Whole of Life insurance. Below, we examine how these policies operate so that you can identify the most suitable option for your loved ones.
Term Life Insurance
Term life insurance is temporary and provides coverage for a specified number of years. Typical term life policy lengths can range between 10 and 30 years.
If you pass away before the term of the policy expires, your beneficiaries will receive the death benefit, tax-free. However, if the plan expires before risk occurs, you may be able to renew the coverage, usually at a higher rate.
Term life insurance is the more affordable policy of the two and is ideal for parents on a budget. Premium payments remain the same throughout the policy period, unless you exceed your coverage and decide to renew it.
Whole of Life Insurance
Whole life insurance provides lifelong coverage and generally comes with higher monthly premiums. The policy guarantees a pay out to your beneficiaries when you pass away as long as you continue paying your premiums as agreed with your insurer.
Do Parents Really Need Life Insurance?
It’s no secret that raising children is expensive. According to a recent report, an average UK couple spends approximately £71,611 raising a child from birth to the age of18, whilst a single parent spends £97,862.
If you were to pass away, your spouse and children would lose your income, making it difficult to handle day-to-day expenses. Taking out life insurance is the surest way to secure your family’s financial wellbeing in the event of your unexpected passing.
This policy can help your family pay rent or mortgage, loans and debts, child’s education and other everyday living expenses. Depending on your plan, life insurance might also cover any medical bills and estate-related loans.
Generally speaking, life insurance brings you peace of mind knowing that your family’s financial future is secured. Without life insurance coverage, your family will have to bear all of the financial burdens you left behind.
Taking out life insurance is just as important as saving for your retirement. As a rule of thumb, this policy should be an integral part of your financial planning if you have someone who relies on your income.
Worth mentioning is that there’s never a better time to take out a life insurance policy than now. That’s because life insurance quotes go up every year you wait to buy. So why not lock in your rate now and enjoy lower premiums? Well, it’s all up to you to make a wise decision!