When people are young, the last thing they want to think about is cheap life insurance. Even entering into a marriage or another permanent relationship will probably not provoke the issue. It is only when the first child is on the way that most couples sit down to discuss the unthinkable. The reason? The acceptance of children into your life is the acceptance of a responsibility to see them through to adulthood with the fewest problems possible. There has to be a financial safety net in place in case one parent falls. What happens if both parents die, say, in a traffic accident? This brings us to the first issue. It does not matter whether both parents will continue to work or one will stay home to look after the children. Whatever insurance is put in place must cover both partners. That way, a survivor will hopefully have enough money to complete the children's upbringing. If a relative is to assume the care of your children after you are gone, a lump sum will ease the children into a new home. To estimate how much insurance, you will need to "guess" how much it will cost to care for your children. This will be particularly important if any child has special needs. So, if the survivor is the homemaker, he or she will need to replace the missing income. If the homemaker disappears, the earner will need to add in the costs of a "nanny", i.e. one or more people to run the household while the survivor is out during the working day.
Then, continuing in the thinking the unthinkable mode, you will need to keep the insurance under review. This covers a number of different possibilities:
- your children's health or needs may prove to be more expensive than you had predicted so increasing the amount of coverage may be necessary;
- if money was tight and you took out a term policy, now may be the time to convert it into a whole life policy; or
- you may want to make the children the beneficiaries of the policy if divorce is possible.
One other option to consider while the children are babies is to insure their lives. This is very cheap because their average life expectancy is long. It provides against the slight risk that, should they develop a chronic illness later in life, they might otherwise be refused insurance.
For you as parents, there are lifestyle issues to consider. You will get discounts if you quit smoking, drink only moderately and reduce your weight, all of which extend your life expectancy. You will also get a lower premium rate if you give up dangerous sports or hobbies. Finally, you need to think about a slightly different risk. Even though you may be perfectly healthy now, this may not last. Should you develop cancer or heart disease, there will be no further life insurance quotes. This is now a balancing decision based on your worst fears and your financial situation. As a young healthy person, you will get low life insurance rates. It can benefit you to take the maximum you can afford early in your life. If necessary, buy convertible term insurance. This starts off cheaply and you can covert when you can afford it.