A lot of parents like to spoil their kids. It’s instinct: maybe they’re just so cute that you can’t help showering them with gifts; maybe you like to reward them for a job well done; or maybe you just go a little overboard for their birthday or Christmas.

But how often do you spoil them with life insurance?

Let’s make this clear – taking out a life insurance on your kid(s) isn’t a good idea. It’s unnecessary and typically a waste of money. Adding a child rider to your own policy? Maybe, if it makes sense. But the life insurance policy you take out on yourself really is for your kids (and for any other dependents). It exists so costs will be covered even if you’re not around to be the breadwinner anymore.

So the next time you’re checking that Christmas list twice, you should consider the gift of life insurance for your kids. But every parent doesn’t have the same life insurance needs. Here’s how you can decide what coverage you need, for parents and kids of every age.

Life insurance needs for new parents

Welcoming a new child into the world can be a wonderful experience, but it is also a serious financial commitment. Now that you have another mouth to feed other than yourself, it’s time to start planning for every eventuality. After all, it will likely cost you the best part of £230,000 to raise your child to 21 (and even then, they’re not guaranteed to be financially independent).

Not only are the early years of a child’s life a time when they are most vulnerable, they are also the most expensive. According to LV, raising a child to their first birthday has an average price tag of £8,500. Rising childcare costs and inflation in recent years have also lead to years 1 to 4 overtaking years 18 to 21 as the most expensive period to raise a child.

The amount of debt is traditionally at its highest, too, as couples tend to take out a mortgage prior to having children. Before we think about how much you will need to safeguard your child’s future in the event of serious illness or death, it is worth evaluating your general life insurance needs.

You’ll need enough life insurance to cover all of your expenses for a given amount of time. This includes your savings, mortgage, everyday spending and the costs associated with your current lifestyle.

 

First, let’s tackle your main debt: your mortgage

Since many people take out life insurance when they buy a house, a decreasing term policy is a common option. This covers you for the amount left to pay on your current mortgage and decreases over time as you pay off what you owe.

Great, you’ve secured your mortgage! But wait, your child still needs feeding and clothing, and there are still bills to pay. While a decreasing term policy affords peace of mind to secure your most valuable asset, it leaves nothing left over for your family to cover costs associated with living.

You may want to ask yourself:

  • How would your partner pay rent if your main household income was disrupted?
  • Could you continue to pay for ongoing utility bills and council tax?
  • Who would look after the children if your partner had to work to cover expenses?
  • Could you afford living costs, both now and in the future? (food, toys, clothing, travel, utility bills, council tax, education, childcare… the list goes on)
  • Could you afford to maintain your current lifestyle, or would you be forced to cut back?
  • If you had to pay for childcare, would there be enough money to cover this?
  • Could you afford to absorb your partner’s personal debt if they were to pass away?
  • Would there be enough money left over to ensure your children have a good footing in life?

Since you already have an estimation of how much it will cost to raise a child, at least in the first few years, you can factor that into your coverage.

For example, if you have a newborn, you may want to ensure there is enough money left over to cover them until a certain age.

The amount you’re covered for can always be increased or decreased as you reach certain financial milestones and as circumstances change, so it’s worth ensuring you have enough to cover all your X’s.

Life insurance needs for parents with teens

Maybe you don’t have teens, but if your child isn’t a baby any longer but still hasn’t graduated university, you fall into this group.

In these years, you have a lot of the same expenses you have previously, just…less. (Unless you had another child in the meantime. Then you need to reassess things.) You’ve started saving for retirement, you’ve paid off a lot of your mortgage, maybe you’ve gotten a higher-paying job. These costs are still there, but use the ladder strategy to decide if you need as much coverage as you once did.

Like we talked about earlier, if you started saving when your child was young, you might be well on your way to helping out with university costs. If you’ve only just started, you have a lot of ground to make up. Take into account how much you’ll be able to put toward university savings every month or year, what your goal needs to be, and how much of your life insurance death benefit you need to go toward that. If you still have a lot of saving to do, costs associated with raising a teenager (such as buying a car and helping out financially as they transition towards independence) may eat into a disproportionate amount of the death benefit, and you still want to leave room for those other expenses.

Life insurance needs for empty-nesters

The life insurance coverage you need once the kids are gone depends on your age. You might have a couple of decades to go until you retire, or it might be right around the corner. But now’s the time when you can focus on you.

Even if you have fewer dependents when the kids are independent, you might still have a major one: your spouse. It’s great if you’ve been saving for retirement, but if you’re only, say, 50 when you become an empty nester, you likely still have at least a decade before you retire – and that means a decade’s worth of saving and compound interest you need to take advantage of.

That means that life insurance is still important. If you have a goal for a retirement amount, first of all, congratulations! Second of all, you probably factored in those intervening years before you reached your goal. If you die at 55 and were planning on saving until you were 65…well, that leaves a little bit of a gap in your plans.

Life insurance can fill that gap. If the kids are gone and the mortgage is paid off but you’re still striving for retirement, don’t discount the role that life insurance can play. You might not need as much coverage, but every little bit can help you secure your golden years.

As a side note: don’t discount the life insurance safety net you’ll need until you’re sure your nest is absolutely empty. I don’t mean you’re living in a horror movie and there’s someone in the house that you don’t know about. I mean something that’s equally as scary to some parents: the boomerang kid. It’s not uncommon for kids to move back home after they graduate, so that can add some unexpected expenses to your budget.

Make sure your kids are actually independent before you write them off. You might also have other, non-children people who are depending on you at this point in your life – namely, aging parents or other elderly relatives. Long-term care insurance can help cover the costs, but family members caring for sick and elderly relatives was at 40{bc6b33b059658b64a479dcd9358eb662a302ca63ec5f6ed6ea3d5485bd7a7211} in 2013. Life insurance can protect relatives outside of your children if you die and they rely on you for caregiving expenses.

Also, don’t discount what life insurance can do for you beyond just covering expenses. Maybe you want to leave an inheritance for your kids, or you want to leave money to that zoo or museum your family has fond memories of. You can leave your death benefit to basically anyone or anything, so even if you aren’t paying for your kids’ expenses anymore, you might want a life insurance policy to leave a financial bequeathment to them.

Everyone’s life insurance need will be different at different points in their lives, but the important thing to note is that your need will change over time. You just need to calculate (to the best of your abilities, of course) how it’ll change. Keep in mind what you need to pay for, and when. It’ll help you maintain the coverage you need to protect your family while making it affordable to do so along the way.

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