When you have children, everything changes. No longer are you the most important person in your life; you need to think about the wellbeing of your children ahead of your own. This has implications for every area of your life, not least your finances.
Giving your children financial security will provide them with a boost throughout their life, both as children and after they become adults. Difficult periods like the recent coronavirus crisis remind us all how far having stable foundations go to keeping you grounded when all else falls into chaos.
Of course, your children must be factored into your financial planning and measures taken to financially protect your loved ones should the worst come to pass. While you might already have a life insurance policy, it is worth taking steps to assess whether this alone is enough for your loved ones to keep going in the event of your untimely death.
What life insurance do I need?
Having children creates a legacy. They will keep your memory and aspects of your personality alive long after you’re gone.
They also mean that you have a responsibility to ensure you can give them a bright future should you no longer be there to provide for them. After the difficulty of losing a parent, having the financial bedrock to build a happy and prosperous future is incredibly important for your dependants.
As a result, you should ensure that you have a life insurance policy that will give your children a rock solid base. The amount you need to have is ultimately dependent on your family’s circumstances.
It goes without saying that the payout should be enough to pay off your mortgage so that your dependants won’t need to say goodbye to their home, as well as any other outstanding debts. Then you’ll need to consider your family’s living costs until your children can stand on their own two feet. Finally, you should think about future spending, to help your children through university and maybe even to contribute towards a house deposit.
Family income benefit
Family income benefit is an alternative to life insurance, which aims to replace lost income if the insured person dies. While regular life insurance pays out a one off lump sum, family income benefit pays a monthly income instead.
When you set up this type of policy, you choose how long you need it to run for. For instance, let’s say you choose a policy that gives you £50,000 worth of annual cover and a term of 25 years. If you passed away ten years into the policy, it would still have 15 years to run and pay £50,000 worth of cover for every year of those 15 years.
These policies can be suitable as an alternative to conventional life insurance for some families.
It’s worth mentioning that some policies let you add critical illness cover. This would produce an income in the event of the diagnosis of a serious illness. The person covered by the policy would not need to die to make a claim.
To cover the incredibly tragic event of both parents dying, it could be worth thinking about getting two single policies. In many cases, it’s only slightly more expensive to have two single life policies instead of just one. If you and your partner died, your dependants will have double the cover.
The income from family income benefit is usually tax free and can be used for any purpose. The cost of the premium depends on a number of factors: the level of cover you need, the policy terms, your age and your health.
Whatever you think is the best way to protect your loved ones after your death, at Advisa we are well positioned to help. For the last 25 years, we have been providing clear, high-quality advice from our home in Jersey. Please get in touch if you have any questions around this topic or about your finances in general.