Mums, you're risking your children's future

More than half of British mums don't have life insurance. But it won't be them that suffer as a result...

It’s fair to say that my son’s arrival in January has changed my life. Out has gone football, beer and TV. In has come nappies, Incy Wincy Spider (including the actions) and lullabies.

Financially there has been a significant effect too (and not just the amount I spend each week on milk). There has been planning for his financial future, as I explained in What to do with your child’s savings, while the launch of Junior ISAs has further confused matters.

But my wife and I have also had to think about what happens if anything happens to either of us...

An important protection, ignored

In our case, thankfully we already had life insurance in place, which we arranged when we bought our house two years ago. But an awfully large number of parents are not protecting their lives – and it’s their children that pay as a result.

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A survey by Legal & General last month found that an astonishing 51% of mothers do not have any life insurance in place. I know it’s a bit morbid, and nobody really wants to think about dying, but this really isn’t the sort of thing you should be burying your head in the sand about.

Who needs life cover?

Not everyone needs life insurance of course. If you’re single, have no children and live in a rented property, chances are life insurance is a needless luxury.

To work out whether life insurance is necessary in your case, you just need to ask a simple question – if you died tomorrow, would anyone suffer financially?

If you are a parent, the answer is almost certainly yes. And that means you need life insurance.

Don’t forget the housewives

When answering that question, it’s easy to focus on working parents. After all, there is an obvious financial impact if they are no longer around, with their monthly salary disappearing.

But that doesn’t mean that non-working parents should ignore life insurance.

After all, non-working parents perform plenty of roles that would ordinarily need to be paid for, like childcare or general chores around the house. If the non-working parent passed away, the costs could soon mount up, so even if you are a housewife (or a lucky househusband), life insurance is probably still a necessity.

Other priorities

What’s interesting is that many of us know that we are leaving ourselves exposed by not utilising such protection.

Aviva’s Family Finances Report earlier this year found that an incredible 93% of families knew they did not have adequate financial protection. And yet, if they were given a £50 a month pay rise, a paltry 2% would put that money towards life insurance.

Even if they were on the receiving end of a far more significant windfall of £10,000, the families responding to the survey had other priorities before protecting their loved ones. Around 44% said they would put the cash towards paying off unsecured debts, while 30% would start an emergency savings account and 30% would start long-term savings.

Just 5% would use the money to take out some form of financial protection for their family.

Breaking the bank

There are a number of misconceptions about life insurance which discourage some people from taking it out.

The first, and perhaps the most significant, is the idea that life insurance is expensive; according to Aviva’s research, almost a fifth of families blame the cost for their lack of cover. The thing is, they would struggle to be more wrong – life insurance can be extremely cheap, with some policies starting at just £5 a month. Who can’t afford £60 a year for the sake of protecting their loved ones’ future?

What’s more, costs are falling, as I explained in Life insurance cheapest for nine years. However, there’s a good chance that such price falls will not last, so if you want to protect your family, now is a financially sensible time to do so.

Another barrier to taking out life insurance is the idea that it ‘never pays out’ and so is not worth buying. Again, this is plain wrong – the most recent figures from the Association of British Insurers showed that policies were paid out in 90% of cases, while some insurers publish their own figures (particularly when they pay out as many as 99% of cases).

Finding the right cover

So we’ve established that life insurance is crucial cover for parents, is affordable, and does actually pay out. But with so many different forms of life insurance, it can be confusing working out exactly which type of cover – and how much – to go for.

We have a life insurance calculator here at lovemoney.com which you can use to work out how much cover is appropriate for you, while a read of How to pick the right life insurance policy should help you make the right decision when selecting cover.

And once you’ve worked out what cover you need, why not make use of lovemoney.com’s life insurance quote engine to compare the best policies in the market today?

Putting it in trust

One thing to consider when sorting out a life insurance policy is whether to have it written into trust. This essentially means that it is viewed as separate to your estate should you die. And there are a number of benefits.

For starters, it means that the money will be paid quickly, as it sidesteps any issues there may be with your estate and the Inland Revenue, which take an average of six months. What’s more, the money goes to exactly who you specify it should go to, rather than simply to your estate.

In addition, doing so can help you reduce any Inheritance Tax bill you may face. Find out more in How to cut your Inheritance Tax bill.

More: Compare life insurance quotes with lovemoney.com | Beat inflation with this savings account | The 10 weirdest homes!