Family life insurance: Protect your family’s future finances

Though it’s never nice to think about death, what happens to our loved ones if we were no longer there to provide for them? Family life insurance is a great way to ensure your family’s financial future is taken care of. In this article, we’ll cover some of the many queries about family life insurance. Let’s get to it!

What is family life insurance?

Simply put, family life insurance is a term used to refer to the different types of life insurance cover suitable for families. We all want to ensure our families are supported financially should the worst happen and we are to die.

How does family life insurance work?

When taking out a life insurance policy you and your insurer will agree on the policy type, length and cost. From there on you will begin paying monthly premiums, you must keep up with your payments to remain covered.

Just like any type of life insurance, when you die a lump sum payment is paid to your loved ones. The money from the policy pay-out can be used to help your family with living expenses, paying off any debts or loans among other things.

Types of family life insurance cover

There are several types of family life insurance cover, each with different costs and benefits. The main types of family life insurance are:

• Whole of life insurance is exactly what the name would suggest, it’s life insurance that covers you for the remainder of your life. Though it’s more costly, you have the benefit of knowing your family is guaranteed a lump sum pay-out.
• Level Term life insurance is the standard type of term life insurance. When taking out a policy, you and your insurer will agree on the policy term, this is how long the policy lasts for (i.e. 20 years). Because of this, you will only receive a payout should you die within this time. If you survive the policy term, you will no longer be covered, nor receive a refund on any premiums paid,
• Decreasing Term insurance is usually taken out to cover a large payment like a repayment mortgage. As you pay back the outstanding balance, your policy pay-out reduces. The idea is that if you die before you’ve paid off the mortgage, your family can use the pay-out to pay off the remaining balance.
• Increasing term insurance works so that the pay-out value increases over time. This is to protect it from the effects of inflation so that the value remains the same as when you first took out the policy.
• Income protection insurance pays out if you are unable to work due to illness, injury or redundancy. This type of insurance can be bought as both a long term or short term option to help your family in these difficult moments.
• Critical illness cover pays out a lump sum payment to you if you are diagnosed with a critical illness. It’s important to note that not all insurance providers cover the same illnesses so you’ll need to check your policy to specify. Though similar to Income protection insurance, it only pays out if you are diagnosed with a defined illness of a specified severity. .
• Family income benefit provides your family with a form of tax-free income when you die. It acts as a replacement of your income to protect your family’s finances and standard of living when you are no longer with them. Unlike other forms of cover that pay out a single lump sum, a family income benefit pays out monthly for a set amount of time.

Do I need family life insurance?

Family life insurance is essential if you have people that depend on you financially and therefore most beneficial for:

• Young families
• Families with older children
• Single parents
• Couples

Unless you have dependents that you hold a financial obligation over, you may not need family life insurance. However, those who do can use the policy to help their loved ones in a range of ways such as:

• Paying off any loans or debts your family has.
• Repaying the remainder of your mortgage.
• Supporting your family with living costs.
• To help pay for your funeral costs.
• Acting as an inheritance for your children.
• To pay towards education costs, such as university tuition or school fees.

The cost of family life insurance

When taking out a family life insurance several factors can determine how much you pay for a policy. Before taking out a policy, your insurer will ask you some health and lifestyle questions to identify the likelihood a claim is to be made. The higher the chance of a claim, the higher your premiums will be.

The cost of your insurance policy also depends on:

• You age
• Health
• Smoker status
• Occupation
• The policy type and length
• The size of the policy pay-out

As a standard, it’s cheaper to take out a life insurance policy when you are younger as there’s less chance of you dying compared to when you are older. That being said, if you are a smoker you can expect to pay higher premiums, though some providers will reduce the price as an incentive for you to quit.

Should I take out family life insurance as a single or joint policy?

Taking out a joint life insurance policy can work out cheaper than you and your partner purchasing individual policies. Joint life insurance is a popular choice with many couples as it is easier to manage, having two lots of coverage within a single policy.

Ultimately, if you are a single parent, it doesn’t make sense in taking out a joint policy, unless you and your child’s parent share finances.

Joint life insurance can be purchased as a first death or second death policy. With first death, the policy immediately pays out after the first death in the partnership, the surviving member will need to take out future cover should they need it.

With second death, the policy will only pay out after both members of the policy have died. For example, if both parents died in an accident then the pay-out is used to support their children’s future financially.

Unsure about a policy? Seek advice!

If you’re unsure about which policy is best for you and your family, there are a few ways to get help. An insurance advisory broker or financial advisor can offer expert advice on which policy you should consider, both in terms of cost and support. Get in touch today!