Welcoming a new baby into the family is a very exciting time!
I’ve done it twice now, and although the second time around it is a different experience than the first; it’s certainly just as special the second time around.
Amongst all the things you need to do like getting the baby’s room organised and stocking up on newborn supplies, it’s very easy to forget about all the other more boring (but essential) tasks required.
One of those is more mundane tasks is to review your insurance after having kids.
Not convinced you need it (insurance)? Read this first….
Why you need to review your insurance
If you’ve just had your first baby; well it’s no longer just you and your partner. You are now a family and therefore have at least one financial dependent.
And if you’ve now got two or more kids, well…. the need for insurance just grew even more important.
Your cost of living just went up, you’ve probably taken on more debt with a bigger house, a bigger car and there’s also more people (and their future) to think about now.
It’s important to start thinking about how your family would cope financially if something were to happen to you or your partner and they were unable to work and provide for the family for an extended period of time.
If you have a mortgage or other debts, it is especially important to consider the impact this would have on your family and their future financial position.
If you don’t have life insurance and you’re not sure you whether you need it – the better question to ask yourself is whether you can afford NOT to have it at this stage of your life.
Things you should review
Do you have the right type of cover?
There are two types of life insurance benefits – lump sum benefits and monthly benefits.
Lump sum insurance covers like Death cover, Total & Permanent Disability cover & Trauma cover pay a ‘lump sum’ amount upon claim and can be used to:
- Pay off debt
- Provide for the future cost of living
- Pay for medical treatments (not covered by insurance or Medicare)
- Pay for home modifications
- Compensate a spouse for taking time off work to care for a sick partner
There is no restriction to how you use these benefits.
Monthly benefits like Income Protection (or Salary Continuance as it’s sometimes called) are paid monthly upon claim as they are primarily intended to replace lost income.
You should review what insurance covers you have to see whether there are any gaps.
For example if you are on maternity leave and your spouse doesn’t have Income Protection insurance, but due to sickness or injury is unable to work for an extended period – how would you continue to service the mortgage, pay rent or meet your general cost of living if you are also unable to work on account of a new baby?
Or the case where either of you is diagnosed with cancer, whether you are working or not this scenario is going to have financial repercussions for the household.
If you are working, you’ll likely need time off work meaning lost income, if you’re not working, you are likely going to need to pay for help around the home or with child minding and in either case you are likely to have additional medical expenses that will need to come from somewhere.
It’s important to look at the covers that you have as your family grows to ensure that you have the right cover for your needs.
Do you still have the right amount of cover?
The type of cover is one thing – but how much are your insured for? This is mostly a concern for those ‘lump sum’ covers as monthly benefits are calculated based on your income.
Lump sum covers on the other hand are nominated at the time of application based on an analysis of your needs – which of course can (and does) change as you start or grow your family with more kids.
Perhaps you first took out cover before you had purchased a house and started a family. In which case, it is possible that this cover is no longer sufficient to meet your needs.
Are you entitled to any additional benefits / features?
Most people aren’t aware of all the ‘bits & bobs’ of their life insurance policies over and above the lump sum payment and / or monthly benefit payable.
Do you have a Future Insurability benefit?
Most underwritten insurance contracts for Death & TPD (no default insurance) will allow an increase in cover without underwriting on certain life events like marriage or birth of a child under what is called the Future Insurability benefit.
To activate this benefit though you firstly need to be aware of it, and secondly you need to apply to the insurer and provide evidence of this benefit.
I did this recently and was able to increase our Death & TPD cover by a further $250,000 without underwriting following the birth of our second daughter simply by completing an application form and sending in a copy of her birth certificate.
What about a Premium Holiday feature?
Often following a new baby – families tend to feel the pinch of a drop to once income and the resulting pressure on the family cashflow. Often people will go through their household budget and insurances are one of the first things to go!
I can understand the argument for self-insuring against loss or damage to your household contents – but your life? Especially once there are children in the mix – it leaves you and your loved ones so unnecessarily vulnerable.
Many underwritten insurance policies for Income Protection (and lump sum covers too) will have a policy benefit known as a Premium Holiday.
This allows a break in cover (usually a maximum period of 12 months over the life of the policy) to ease financial pressure.
During the holiday, no premiums are payable and no cover is provided – BUT it does mean you are able to reinstate the policy and commence paying premiums without having to reapply for cover and go through underwriting during which there is always the risk you will be declined or face exclusions or premium loadings if there has been a change in your health over that time.
How using a financial adviser can help
If you need help with how to review your life insurance after kids I would recommend seeking the help of a financial adviser.
There’s lots to be mindful of when it comes to life insurance and it is one of those areas where I always recommend getting personal financial advice.
If you already have cover in place with an adviser and aren’t sure how the above applies to you – get in touch with your adviser to double check your coverage and entitlements!
As always, feel free to reach out for some help if you’re stuck 🙂