Do I need a family life insurance policy

Starting a family is one of the greatest joys in life, making memories that last a lifetime. The fact is, nobody wants to die, leaving their family with any financial burdens they may struggle to pay. That’s why a family life insurance policy can provide financial security for your loved ones, long after you’re gone.

What is a family life insurance policy?

Family life insurance refers to any type of life insurance policy, used to protect your family. When you die, a lump sum is paid to your loved ones, providing financial support during this difficult time. The pay-out from a family life insurance policy can be used to help cover:

• Household bills such as a mortgage or rent
• Outstanding payments like a loan or debt.
• Childcare support
• Education costs such as school & university fees
• General living expenses
• Funeral costs

When you take out a policy, you begin paying monthly premiums to your insurance provider. You must keep up with these payments – if not you will no longer receive cover or a refund on the premiums already paid.

Types of family life insurance policies

Several types of life insurance provide your and your loved ones with protection. These policies can differ in terms of length and cost, therefore you must understand how they work.

Term life insurance covers you for a set length known as the ‘policy term’. Though it’s generally cheap to buy, you only receive a payout if you die within the policy term (i.e. 20 years). It can be bought as 3 types of cover:

• Level term life insurance – Your policy premiums and pay-out remain the same throughout the term. The one flaw is that the policy is not protected from inflation, so your policy may reduce in value.
• Decreasing term life insurance – This policy is often taken out to cover large payments like a  mortgage. It’s designed so that if you die, your family can use the payout to cover the amount owed.  The policy pay-out amount decreases over the term of the policy (the rate at the pay-out decreases by a set percentage which your provider defines at the start of the policy).
• Increasing term life insurance – The policy pay-out value increases over time to protect it from inflation. This means the eventual payout value will match the cost of living. However, this can also lead to a rise in cost for your premiums.

Whole life insurance (also known as ‘life assurance’) guarantees your loved ones a lump sum payout when you die – so long as you keep paying for your premiums. Unlike term life insurance, a whole-of-life policy ensures your family is protected no matter when you die. Though it can be expensive, the peace of mind it provides is priceless.

Popular with spouses & couples – joint life insurance provides cover for two people under a single policy. Many families find that it is easier to manage and often cheaper than two individual policies. Joint life policies typically work on a first-death basis – meaning it pays out after the first death of the couple. The surviving member will then need to seek out further cover if required.

Who needs family life insurance?

Generally speaking, if you have a family it’s always worth considering life insurance. None of us truly know what lurks behind the corner and it’s always better to be safe than sorry. You may need family life insurance if you are:

• A young family
• Your family’s main source of income
• A single parent or guardian
• Married or in a long-term relationship
• Financially responsible for a parent or sibling

Alternatives to family life insurance

There are several alternatives to family life insurance, providing your family with financial support when you die. This can be bought as cover policies or add-ons to existing life insurance policies.

Critical illness cover can be bought individually or as an add-on to an existing policy. It pays out in the event you are diagnosed with a critical illness, supporting you and your family through this tough time. Not all insurers cover the same illness, so it’s worth checking your insurance agreement to stay informed. 

There is also terminal illness coverage, which is typically included with medical UW life insurance policies. It pays out if you are diagnosed with a terminal illness in which you will die within 12 months or less. Just like critical illness coverage, not all terminal illnesses may be covered by your insurer.

If you are employed then you may already have cover in the form of a death in service benefit. This is sometimes provided by employers as part of a company care package. If you die whilst employed by the same company, your family receives a lump sum – which is a multiple of your salary. One thing to note is that if you leave the company (which many of us do), you typically forfeit your cover.

A family income benefit can also provide your family with a form of income after you’re dead. Where most types of cover issue a one-time payment, a family income benefit pays out a monthly sum. This acts as a replacement for your wage.

How much does life insurance cost?

There are several factors that insurers take into consideration when pricing your policy. Before taking out a policy, your insurer will ask some general health & lifestyle questions to estimate the cost. 

These questions usually regard:

• Age
• Health
• Family medical history
• Occupation
• Smoking status
• The type and length of cover required

The cost of life insurance increases as you get older that’s why it’s always better to take out cover when you are young. It’s always important to answer any of these questions truthfully – if not your cover may be voided. 

Where can I buy the cover?

Thanks to the internet, there are many ways to buy life insurance coverage. Some routes are more cost-effective than others, however, the overall policy may not be the best match for your circumstances. Life insurance can be purchased from:

• Insurance companies directly
• Online life insurance brokers
• Comparison sites

If you are unsure about whether you can afford life insurance, it’s worth speaking to a financial advisor. They can offer expert financial advice, helping you decide on a policy that fits your budget.

Even if you don’t think you need family life insurance, it’s always best to be prepared should the worst happen. Secure your family’s financial safety by taking out a policy today!