If I am Having a Baby should I take out Life Insurance?

The fuzzy baby powder adverts showing a smiling, clean, happy and healthy baby in his or her tranquil looking parent’s arms, kind of create the perception with want-to-be parents that it is a gloriously peaceful affair. And, whilst a glorious experience it certainly is, peaceful rarely comes into the picture.

Not only are babies little people who are born with built-in intelligence, personalities and characters, but they are also born (just like you and I) with the desire to express all of this. Sans speech that is. So, peaceful on the part of the parent, is reserved for those times when baby finds him or herself happily playing in dreamland.

Even then, the word peaceful should be used with some reservation. The reason for this is that as parents there are many aspects of raising a child that leaves us devoid of peace of mind. We are constantly aware that we do not know everything – after all, babies do not arrive manual in hand – and we are constantly aware that we have taken on a mammoth, long term responsibility: that of care.

Care in a baby sense covers every conceivable dimension of caring: Emotional, psychological, physical, spiritual and financial. The latter, in particular, can turn out to be a shock for some new parents. Everything baby-ish is hugely expensive, and as time goes by, the expenses only seem to grow.

But, the responsibility of care goes even further. It also encompasses planning for the unthinkable. As a result – and this is not purely traditional – one of the things most parents do, is to appoint godparents. Grim as it may appear, the reason for having godparents is to ensure that baby will be able to grow up in a loving environment with people we can trust should both parents die. This is also the time when the topic of additional life insurance is broached.

Is life insurance necessary?

This is a resounding ‘yes’ – regardless if only one or both of you die at once. Unlike adults, babies simply do not have the means to financially support themselves. Although the surviving parent or your baby’s godparents will consider it a privilege to lavish their care on the little one, there will be expenses too foot – and much of it – as your little one takes his or her journey to adulthood. The right thing to do is to ensure that there will be sufficient funds in place.

How much life insurance is necessary?

The starting point should be drawing up a budget that details the expenses that are likely to be incurred by your child until he or she has completed studying and found a job. It is safe to assume that this can be accomplished by age 25. Remember to include absolutely everything: accommodation, subsistence, medical, education, sport, entertainment, incidentals etc.

Also estimate how much the winding up of your estate will come to, and add a further discretionary amount that can be used as a safety net for unexpected expenses.

The total you arrive at is the amount of money that will be required to see baby through to adulthood.

Should you make the decision that all your assets be sold upon your death, you can deduct the total amount of cover from the value of the assets. This will leave you more or less with the amount of cover you will need to buy.

Who should the beneficiary be?

The beneficiary on the policy could be the baby. However, you should remember that if both of you die, the money will be managed by the godparents. If this makes you feel a little uncomfortable, you may want to look at structuring your estate to ensure that your child’s financial position is safeguarded in the best possible manner. This will probably involve establishing a trust and drawing up a Will. This could be quite complicated, so it is essential that you consult with a qualified legal advisor in this regard.

To conclude

The amount of cover you will need will decrease over time. Regardless of which type of policy you buy, ensure that it is sufficiently flexible to allow you to adjust the cover from time to time.