If you are a new parent, you are probably stressed out right now. Between all the feedings and Facebook posts, you know that life is never the same with an addition to the family: it is exhilarating on the emotional level but daunting from a financial perspective.
Being a parent exposes you to unique financial issues you may not have anticipated in the past, and one of those issues is that of Life Insurance needs for yourself, your spouse, and your child.
Here are 5 of the most common (and easily avoidable) mistakes that new parents make regarding Life Insurance, and how best to remedy the situation.
Mistake 1: Covering your child first
Its every parent’s instinct to protect their little ones – and that’s the way that nature intended it to be. Parents are willing to put their children’s needs before their own, sparing no expense to give them the best food, provide the best education, buy the latest Ipad (they make such wonderful baby pacifiers), and the list goes on.
Occasionally this extends to Life Insurance as well: Parents see fit to ensure their children are armed with chockful of policies – Whole Life Insurance, Endowments and perhaps Investment Linked Plans. There is nothing wrong with this except sometimes this is done at the cost of having none or inadequate coverage for the parents.
This is a mistake because the Life Insurance is required to replace the lost income if a parent were to die prematurely, or be rendered unable to work due to injury or illness. In stark contrast, you are not replying on your child for income, so it definitely makes sense to make sure you and your spouse are properly covered first, before taking on additional policies for your children.
Make sure you and your spouse are adequately covered with the right type of insurances before covering your children. One incredibly cost efficient way to get cover is Term Insurance.
Mistake 2: Skimping on Life Insurance
Having a baby or raising a child is definitely not cheap. There are tonnes of stuff that new parents are just compelled to buy: designer toys, cute clothes, baby swimming lessons (the rage these days), state of the art stroller, a specialized diaper disposal unit (a garbage can just isn’t enough sometimes), so on so forth. Amidst all these “necessities”, it is most easy to overlook insurance.
We can understand why: it’s doesn’t look good in pictures, its not something that baby can wear, it cannot clean up after itself, and you won’t post about your newest policy bought on Facebook (15 year pay Whole Life – best purchase ever!).
Yet one crucial mistake that new parents make is not spending enough on Life Insurance, which on many levels is a necessity, not a novelty. When the unexpected happens, you might find yourself with inadequate cover (or worse still, zero cover) – which is a financial disaster for your family. Like what our favorite investment sage Warren Buffet says: If you buy things you don’t need, soon you will have to sell things you need.
Work out a reasonable (and sufficient!) budget for Life Insurance, and stick to it. Its too easy to get caught up in the consumerism race for the newest, the best, and the flashiest – but never forget the most important. A simple guide would be to set aside 5 – 20% of your monthly income for insurance.
Mistake 3: Not understanding your family’s coverage needs
Its not enough to just devote a budget to buying Life Insurance, its also important to buy the right type of cover. Easy enough to give yourself a pat on the back if you know you are spending the right amount every month on Insurance, but too many times parents actually get their coverage priorities wrong – only because they don’t understand enough to make the right decision.
For example, if you were to spend all, or most of your Insurance money on say, an Endowment plan, you might be thinking : I get some cover, and this plan will take care of Baby’s university education. Win – win right?
Not quite. Are you adequately covered for Critical illness if it should strike? If your spouse passes on, can you maintain the same or similar quality of life even without his or her income? If your child has to stay in a hospital for a prolonged period of time, do you have insurance to cover those fees? If the answer to any of these questions is a no, then its advisable to re look into your current policies.
Learn up about Life Insurance basics from this link here. Ensure both parents get sufficient cover on Critical Illness, Disability, Death, and Hospitalization needs before addressing others. Read up more on coverage needs even it it drains some of your energy, because while ignorance can be convenient, is always expensive.
Mistake 4: Not getting policies for your children
Once you’ve adequately addressed insurance requirement of both parents, it is now time to move on for coverage for your children. Granted, you do not depend on your children for income, but that is no reason to not cover your children. Here are several reasons why:
- Children can fall ill – sometimes seriously ill. Insurance helps take care of that financial burden. Shield plans perform this function admirably.
- Some illnesses develop late in childhood (or even adulthood), which may exclude your child from purchasing Life Insurance. Starting a policy early (especially a Whole Life Plan) can ensure that your child has something to fall back on later in life.
- Premiums are usually cheaper for younger children – no reason not to take advantage of this
Always try to ensure that your children are covered for hospitalization bills (Shield Plans), serious illness (or Critical illness), and it would be good to start them off with a small Whole Life Plan, but only after you have taken care of your own insurance needs first.
Mistake 5: Neglecting your Retirement Savings
As your child grows up, its natural for you to be concerned about his or her education costs. Its not only about setting aside a sum of money for university, or even a higher degree – what about tuition lessons, books, enrichment classes?
Some parents heroically shrug off their own retirement planning – and funds – to make way for their children’s education. That is a big mistake, because the name of the game these days is to be self-sufficient (us parents!). If you neglect your retirement nest egg, imagine the financial burden your child has to carry if they had to support you during your retirement (you may not always be able to work even if you wanted to).
Its all too easy to overestimate education fees and expenses. We are not saying to totally ignore these, but remember that being self sufficient in your retirement years is equally important, and plan for that accordingly.
Take an objective look at your future plans. Do you have enough once you stop working, to be fully self reliant? If the answer is no, check if you can adjust some expenses or priorities to ensure the nest egg is growing consistently.
Being a new parent is definitely not easy. But with this guide, we hope that your journey into parenthood would be a little less tricky, and a little more smooth sailing, from an insurance perspective.
Do you have any questions regarding Life Insurance as a new parent? We would love to answer them in the comments section below!
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.