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Ask any parent about how we protect our children and we’ll spout all the ways that we try our best to keep them safe: car seats, vaccinations, teaching road safety, chopping up grapes – the list is endless.
But a parent’s responsibility continues even after death, yet research from Scottish Widows reveals that 60% of women in the UK with dependent children have no life cover, leaving their families in a precarious situation if the worst were to happen.
The research also shows that only 13% of mums have a critical illness policy, leaving many more at risk of financial hardship if they were to become seriously ill.
No one likes to think about our death – it feels morbid or like we are tempting fate simply for considering it.
Though for many families, this is a grim reality. In fact, figures from the Childhood Bereavement Network, estimates that every 22 minutes in the UK, a parent dies leaving dependent children. By the age of 16, one in twenty young people will have had a parent pass away.
The research from Scottish Widows also suggests that many mothers are underestimating the financial value of their role within the household. Almost a quarter say that they’ve not taken out life insurance because it’s not a financial priority or they don’t think they need it.
But even in a two-income family, the loss of either parent would have extremely serious implications. Parents depend on each other in all sorts of ways that go beyond earning an income and paying the bills. In many cases, the surviving parent would have to leave their full-time job to care for the kids. Or if they choose to continue to work, the extra childcare needed would become very expensive.
WHY YOU CAN’T RELY ON STATE BENEFITS
Lack of planning is leaving many families in a vulnerable position. When asked how they’d cope should they or their partner not be able to work for six months, a third of mothers say they’d rely only on state benefits.
Most people dramatically overestimate the amount of state aid they will receive if they are taken ill. In fact, according to protection specialist Lifesearch, a 35–year–old, non-smoking woman earning a salary of £35,000 would be entitled to a maximum of just £141.10 a week in Personal Independence Payment (Pip) benefits. But an income protection policy from Legal & General would guarantee a monthly income of £1,500 until the age of 65, for just £26.95 a month.
With a new Bereavement Support Payment system now in place, which may result in a significant reduction in the period over which support will be available, it’s more important than ever for mothers to review their financial protection needs. This is especially the case for cohabiters, who still don’t qualify for bereavement benefits.
HOW YOU CAN PROTECT YOUR FAMILY
So how can you ensure you are properly protected should you find yourself out of work due to an accident or sickness? How much cover is enough? And how much does it cost?
It is worth considering insurance such as income protection or critical illness cover. These policies can pay vital bills in the event of prolonged periods unemployment due to poor health. How much you need depends mainly on your circumstances and what you want to achieve. The general rule is that it should be enough to pay off any debts when you die and provide money so your partner and any children will be financially secure.
Like any insurance, it is crucial that you shop around before you purchase a policy. Never assume that your bank or broker will offer you the best deal as many are usually tied to just one provider and can be very expensive.
Policies are priced according to your age, general health and the amount you want to receive if you must make a claim. When calculating how much cover you need, it makes financial sense to consider all the monthly outgoings you pay every month.
As well as your mortgage, rent or loan commitments, you must include those everyday essentials such as council tax, utility bills and the weekly food shop. Fail to do so and you could still end up in debt trying to meet your other commitments.
Financial experts agree that due to society’s increasing life expectancy, it is crucial to think past traditional retirement age or your mortgage term when taking out a protection policy to ensure that you will be adequately covered for the duration you require.
WHAT I’M DOING
I’ll admit, no one really wants to spend money on something they hope will never happen. Few of us can even bring ourselves to think about the possibility – even if it’s “just” losing our jobs. But should disaster strike in my young family, I like to think that we are – at least, financially – prepared.
For me, I have never taken good health for granted, most likely due to growing up with parents who both suffered from severe ill health at an early age. Fortunately, my folks had taken precautions before illness occurred, so our household, while rocked by the changes caused by their early retirement, we were able to continue our very comfortable lifestyle.
When our daughter Audrey was born in 2013, my husband and I chose to provide the same type protection for our family and took out all relevant insurance policies via Lifesearch, the protection specialists.
However, it seems that that peace of mind doesn’t come cheap these days. With policies for everything from income protection, critical illness, life insurance and family income benefit, we spend a whopping £203 each month.
We have opted for a mix of cover – some to provide a lump sum in the event of our death and Family Income Benefit, which will pay a tax-free monthly income for our daughter, until the age of 21. Both of which are as single life plans rather than joint life, meaning both policies would pay out should both of us pass away.
We also have decreasing life insurance cover on our mortgage, where the payout will shrink in line with the amount left owing on our repayment mortgage, protection to provide a monthly income if we are too sick to work and critical illness insurance.
Naturally, we want our estate to be left to our daughter, but we had concerns about what might happen before Audrey was mature enough to make sound financial decisions. As a result, we set up a trust into which our life insurance and Family Income Benefit would be paid.
A trust is a legal entity that holds assets on behalf of the beneficiary and appoints a trustee – my sister in our case – to distribute them according to your instructions. For instance, we have instructed the trustee to make regular monthly payments from the trust our daughter so the inheritance can’t be spent all at once.
The good news is that chances are you won’t have to pay as much as my husband and I. Despite both being 38 and non-smokers, are premiums are high thanks to our family medical histories. Phew.
TOP TIPS FOR BEST VALUE
While these types of insurance policies complement each other, they do different things and cover different risks so it is important to carefully consider both before making a purchase. If you have a heart attack, for instance, and return to work after six months, a critical illness policy would have paid the lump sum, where income protection payments would stop when you go back to work.
When it comes to choosing an income protection policy, consumers should look to insure their “own occupation” – claimants who are unable to do their own job – rather than any work at all because they fall ill. Luckily, this type of cover, while offering better protection, may not be costlier as it is factors such as age, smoking, occupation, length of policy and amount of cover that determines the premium.
Get the most for your premiums and opt for two single policies rather than joint cover if you are in a relationship. Despite higher premiums of roughly 10%, these two policies can pay out twice, whereas a joint policy will only ever pay out once.
Be completely honest in your answers to all the questions on the application, for example your medical history, otherwise the policy could be worthless.
You might feel that you are having to give far too much information, but if you hold something back it could really affect whether the insurer pay out in the event of a claim.