The simple answer to this question is that it usually important to insure the life of a spouse, but probably not worth insuring the life of a child. The reasons for this general statement are explained below.
Should I have life insurance for my spouse?
If you and your partner are living together and you have children, there is an important financial bond, and in the event of either of your deaths there will be major implications that can be eased by having sufficient Life Insurance cover. This can be explained from both perspectives when looking at the need for Life Insurance.
Perspective of the main income earner
In a large number of families, one of the parents will provide the main income for the family. Whilst many of the duties relating to the home may be shared, the one who is the lower income earner will be often working part time or not at all. They often take responsibility for the general running of the house and take on the majority of the childcare responsibilities.
In the event of the death of the lower income earner, there will still be the costs of childcare and the extra burden of the general running of the home. Frequently there will an increase in the costs of childcare, as the surviving partner may need to use the services of a childminder, after school clubs etc.
Perspective of the lower income earner
In the tragic event of the death of the main income earner, the surviving partner will have a considerably reduced income coming into the household, but will continue to pay for most of the general household expenses.
If there is no life insurance this can mean having to return to work, or increase the hours worked. Even this increased income may not be sufficient to replace the lost income, and if it is necessary to increase hours there may be an increase in expenses for things such as childcare.
How Life Insurance can help
For a relatively small outlay, it is possible to insure the life of a partner so that there will an appropriate lump sum available to ease the financial burden in the event of their death. This lump sum can be invested to provide a regular income stream so that you do not have to worry about the additional expenses of running a household.
Should I insure the lives of my children?
The simple answer is probably not.
Statistically the likelihood of a child who is less than twenty years old dying is very small. In England and Wales in 2011 there were around 450,000 deaths. Less than 2,000 deaths were of children aged between 1 and 20. (Source ONS published data)
Whilst it is possible to buy Life Insurance on the lives of your children, they rarely contribute to the family income and cost of running of a home and therefore there is no need for it.
The exception to this is Critical Illness insurance. Some Critical Illness insurance policies automatically cover children. The cost of including this additional cover is minimal, so when comparing policies, if the costs are roughly the same, it is probably worth going for the policy that provides the cover for children.
This article is for guidance only and must not be construed as advice. The contents of this article are aimed at the UK market, although many countries will have similar policies available. If you need advice you should refer to a Financial Adviser.