Do I need insurance if I become a stay-at-home parent?

Mouthy Money Your Questions Answered panelist Alan Richardson answers a reader’s question about their options when it comes to protection policies if one person gives up their job for childcare.

Question: I’ve just had my first baby at 34 and have decided not to go back to work. What insurance is available to help our family finances? My partner works full time, and I will be caring for our child until they are three when I plan to go back to work.

Answer: Deciding to put your career on hold so that you can be a stay-at-home parent is not an easy decision.

There are many aspects to consider and it’s great that you are scrutinising the financial ramifications of not only a reduced household income, but also depending on one bread winner.

One often overlooked aspect of giving up work is the loss of any work-based benefits you may have had. This could include life cover, sick pay, maternity cover, medical diagnosis and treatment, and other benefits such as annual leave.

Fortunately, in the UK we have one of the world’s leading insurance markets, offering a huge range of products, yet this can be daunting and at times confusing, so speaking with an independent adviser could be helpful.

Life cover is often a good starting point. This can pay out as a lump sum or as a regular income in the event of death (or terminal illness). Some people take both types of life cover, one to cover the mortgage and the other to providing a regular household income to pay for things such as household bills and childcare fees.

Whether you are married of not, ask your adviser or insurer to place your policy into trust. This will give you an element of control over who will ultimately benefit from any pay out, as well as outlining who would look after the money until a beneficiary was old enough to receive it.  

With life cover, you have helped instil an element of financial resilience for your family should you die. However, we are all more likely to become seriously ill before we die. Critical illness polices cover cancers, heart attacks, strokes, and dozens of other serious illnesses.

Although a cash injection isn’t going to necessarily fix the condition, having access to funds to cover the additional costs and reduce financial stress is useful. Many Insurers will also cover your children automatically. 

There is also income protection, which pays a tax-free replacement income if you cannot work, including those who do not work although the amount of cover is limited.

It is important to insure the main household income so you’re covered yet the cost of these policies vary greatly and the options can be amended to suit your budget.

Finally, Private Medical Insurance (PMI) is one of the fasted growing areas of insurance.

More than other policies, this insurance provides you with practical assistance to beat an illness, giving you access to comprehensive list of hospitals, consultants, and surgeons to attend privately. This allows you to get quicker diagnosis, early treatment, specialised medical care and medication to speed up your recovery.

While many couples set up protection policies up on a joint basis, advisers will often recommend arranging separate policies for a number of reasons.

This will depend on your budget but having two policies means you both have cover – as even though you’re not working the financial value of everything you’re doing including childcare costs will be substantial.

Furthermore, some policies encourage you to stay fit and healthy and may also include added benefits such as 24/7 virtual GP apps, lifestyle planning and second opinion diagnosis services, at no extra cost.

Alan Richardson is Head of Advice at LifeSearch.

Bio: Alan Richardson has worked across the insurance sector for over 25 years and is Head of Advice at protection specialists, LifeSearch. He and his family moved to the Cambridgeshire in 2020 and is loving the health benefits of the fresh country air as he walks to the local pubs.

Photo by Picsea on Unsplash