Life Insurance When You Have a Baby

Nothing changes a household's financial position as abruptly as a first child.

The day before, two adults could both work, move, downsize or take a lower paid job if something went wrong. The day after, there is a person who needs housing, feeding and supporting for roughly two decades, and one of the adults is probably about to stop earning for a while.

That is the gap worth closing, and it is usually closed badly or not at all, because the first year of a child's life is the worst possible time to find the energy to deal with insurance.

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The short answer

A baby creates an eighteen-year financial commitment on the day it arrives, which is longer than most people's mortgage term and considerably longer than their savings would last. The practical move is to set the cover term against the child reaching independence rather than against the mortgage, and to insure both parents including one who has stopped earning.

What this changes

Somebody now depends on your income for about eighteen years, which is longer than most mortgage terms
One parent usually stops earning for a period, so the household runs on one income
Childcare becomes a major cost, and it is a cost that exists whether or not you can work
The surviving parent may need to stop working, or reduce hours, rather than being able to work more
Your death in service, if you have any, usually pays a multiple of salary that was sized before the child existed
Any existing cover was probably arranged around a mortgage rather than around a person

The bit people miss

The thing almost everybody misses is the parent who is not earning. People insure the salary and leave the person doing the childcare uninsured, on the logic that there is no income to replace. If that parent dies, the working parent has to pay somebody to do what they were doing, usually while grieving and often while cutting their own hours, and that cost is substantial and immediate. Both parents need cover, and for different reasons.

Insure The Child, Not The Mortgage

Most people size life cover against the outstanding mortgage, which made sense before there was a child and stops making sense afterwards.

A mortgage is a number that falls every month and ends on a known date. A child is a commitment that runs for about eighteen years and gets more expensive as it goes, and clearing the mortgage does not feed anybody. A household whose cover was sized to the loan can end up with a paid-off house, no income and a childcare bill.

So the useful question is not what is left on the mortgage. It is what the surviving parent would need each year to keep the household running until the youngest child is independent, multiplied by the number of years that is. That is a bigger figure and it is the honest one.

Do It Before The Birth If You Can

There is a practical reason to arrange this during pregnancy rather than after, and it is not about enthusiasm.

Protection is underwritten on health at the point of application. Pregnancy itself is a normal part of life rather than a problem, but complications, post-natal depression and anything else that appears during or after a birth become part of a medical history, and a history is harder to insure around than a clean slate. Sorting it earlier means sorting it on simpler terms.

The other reason is simply bandwidth. Nobody arranges insurance well in the third month of broken sleep, and the period when the need is greatest is exactly when nobody has the energy to deal with it.

What usually fits, and why

Life cover

The core of it. Set the term against the youngest child reaching independence rather than against the mortgage, because the mortgage usually finishes first and the child does not.

Critical illness cover

Surviving a serious illness with a baby in the house costs money: time off beyond sick pay, help at home, and sometimes a permanent change in working hours.

Income protection

The likeliest claim of the three. A long illness while raising a child is far more common than dying during it, and the household has least slack at exactly this point.

Common questions

How much life insurance should new parents have?+

Work it from the child rather than the mortgage. The useful calculation is what the surviving parent would need each year to run the household until the youngest is independent, multiplied by the number of years, plus anything needed to clear debts. That is usually a larger figure than the outstanding loan, because clearing the mortgage does not pay for food, childcare or a reduced working week.

Should the parent who is not working be insured?+

Yes, and this is the most commonly missed part. People insure the salary and leave the parent doing childcare uninsured because there is no income to replace. If that parent dies, the working parent has to pay somebody to do what they were doing, usually while grieving and often while cutting their own hours. That cost is immediate and substantial.

How long should the cover last?+

Generally until the youngest child is financially independent, which for most people is longer than the mortgage term. Some people run two policies: one matching the mortgage and one longer one covering the child-raising years. We can show you what each shape costs so you can see the difference rather than guess.

Is it better to arrange it before the baby arrives?+

Usually yes, for two reasons. Protection is underwritten on your health when you apply, and anything that arises during or after a birth becomes part of a medical history, which is harder to insure around than a clean one. The other reason is practical: nobody arranges insurance well in the third month of broken sleep.

We already have cover from work. Is that enough?+

It is a start and it is rarely sized for a child, because death in service is normally a multiple of salary set long before your circumstances changed. It also disappears if you leave the job. Worth checking what it actually pays and treating it as a base to build on rather than the answer.

Cover that often goes with this

The gaps we most often find sitting next to this one.