Endowment policy cash could make a dent in climbing family costs

Publication date | 25/02/2010

Many Britons may be planning to start a family this year, but one organisation has reminded parents that they must prepare for the potential cost of children.

A new survey by LV= found that the cost of raising a child from birth to the age of 21 may reach more than £200,000.

Childcare and education costs are the two biggest expenditures of parents. Such expenses could be even higher if private education, university fees and after-school clubs are taken into account.

Many Britons may not currently have large enough savings in place to deal with both the short-term and long-term expense of raising a child.

However, Chris Radford, chief executive officer of aap, the UK's biggest buyer of endowment policies, said some of its customers had decided to sell an underperforming endowment policy in order to raise the cash to cover the immediate expense of expanding a family.

With the endowment policy cash being used for this, parents could be given the breathing space required to ramp up their savings for expenses in the future, such as nursery and school fees.

Raising a family in the UK proves expensive

The LV= survey discovered that in the first year of its poll - 2003 - childcare amounted to more than £32,800 from birth.

In January 2009, this figure had increased by more than £20,000. Likewise, education expense rose from £32,593 to £50,240.

At current levels, LV='s Cost of a Child study found that between birth and the age of 21 parents are likely to pay more than £9,600 a year to cover the cost of their children.

Broken down, this equates to £800 a month and £26 a day. However, when mortgages and other financial commitments such as credit card and personal loan repayments are taken into account, some mums and dads may feel they need a little monetary support.

Mr Radford, from aap, said some of its customers with children had decided to strengthen their household finances by selling their underachieving endowment policies to cover family costs, rather than relying on loans and credit cards.

Endowment policy cash could make a significant dent in the cost of raising a family.

Commenting on the poll's findings, Mike Rogers, LV= group chief executive, said: "For the first time since this report began, the cost of raising just one child has topped £200,000. Every parent will know how expensive it can be to raise a little one, and as parents, we know we don't begrudge a single penny of it. But I suspect many new and prospective mums and dads will be a little shocked to see the potential financial burden ahead of them."

Selling your endowment could prepare you for parenthood

The cost does not stop once kids reach 18. The Children's Mutual recently reported that supporting adult children between the ages of 18 and 30 can cost more than £30,000.

Such expense could include helping to cover a deposit for a first home or providing the money needed to pay for loved ones' weddings.

Mr Radford, from aap, said some of its customers with grown-up children and who still had their endowments had decided that selling their unwanted endowment policies was the ideal option for helping their offspring settle down in life.

Selling an endowment could have been preferred than other options. The Children's Mutual found that over a quarter of parents have remortgaged or plan to remortgage to have fund their children.

David White, chief executive of The Children's Mutual, stated: "More than half agreed that if they'd have known when their child was born what they now know about the cost of having an adult child they would have saved more through the years, with just 13 per cent having saved regularly in preparation."

Selling an endowment could be one way to raise money when savings alone are not enough to cover the cost of a family, young or older.

Reasons to sell your endowment policy