How getting your insurance right can help your kids
Written and accurate as at: Dec 13, 2024 Current Stats & Facts
For many people, the life insurance discussion only starts in earnest when children enter the picture. All of a sudden your world expands, your responsibilities multiply, and the question of how your family would cope without you becomes a very real concern.
But how exactly can life insurance benefit your family — and your children in particular? If you have kids on the way and are wondering if it’s worth taking out a policy, or you’re thinking about changing the level of coverage on the one you currently have, here are a few things to keep in mind.
Helping your family cover the funeral and ongoing expenses
If you were to pass away, the expenses your family could face can add up fairly quickly. The funeral service alone can cost between $4,000 and $15,000, and once that’s out of the way your family will have to face all the usual household expenses like groceries and utility bills. This can be made more difficult if you were the primary breadwinner and avenues such as turning to extended family are closed off.
Confidence you can service your mortgage
As property prices climb higher and the age at which Australians purchase their first home gets pushed further out, many people are expecting to retain their mortgage well into their golden years.
While repayments might be manageable now, would that still be the case if you or your spouse passed away or were unable to work? Depending on how much you’re insured for, any payouts you receive can help settle the mortgage or chip away at enough to make doing so achievable on a single income.
Helping to protect your savings
People in vulnerable situations often find themselves resorting to debt to get by. While this can provide immediate relief, there’s always the risk that any debt you take on will snowball and wreak havoc on your budget. Having the right life insurance policy in place can help reduce your family’s reliance on credit cards, personal loans and payday loans, freeing them up to tackle life’s challenges without the extra financial stress.
Help preserve your child’s inheritance
Uninsured families might also be vulnerable in more indirect ways. There’s the possibility that a death or accident will force your family to tap into funds that you were intending to give to your children in the future, jeopardising any plans you had for their education and future home ownership. Sudden hardship, if it occurs early enough in their lives, might even prevent you from building up an inheritance in the first place.
What you can do to get your insurance right
So what are some practical steps you can take to help ensure your life insurance is working for you?
- Any big changes in your family or financial situation (like having a child or taking out a mortgage) should prompt a review of the level of insurance you have. If you find your level of coverage is no longer suitable, reach out to your super fund or insurance provider to discuss.
- In many cases, having only some life insurance can be better than not having any at all. If you can’t afford full coverage, think about applying for just enough to cover a few years of expenses, along with any outstanding debts.
- If you have a baby on the way and are thinking about taking out a policy, try to get the ball rolling prior to their arrival. That’s because it might be tough to find the time afterwards to compare different policies and determine which is right for you.
- Regularly review your beneficiaries to make sure they’re up to date. And keep in mind that if you nominate a child under 18 as a beneficiary, your life insurance provider will typically only pay the full amount to them once they turn 18.
- Make sure you understand the exclusions on your policy before committing. Some exclusions apply regardless of the applicant, while others are specific to your circumstances (such as certain occupational hazards).
- If you take out insurance cover through super, your premiums are deducted from your super balance. This will ultimately affect your retirement savings, so it’s important to consider your priorities before making a decision.
