Starting a family is one of life’s precious moments, but while we plan for the best we should also plan for the worst. Family life insurance is one of many ways you can buy to protect your loved ones financially, for when you’re no longer around.
So how does family life insurance work and which type is best for families? Learn all about it and more in this article.
What is family life insurance?
Family life insurance refers to any type of life insurance policy that offers financial protection for your family in the event of your death. Just like a standard life insurance policy, it pays out a cash lump sum when you die.
It provides financial support for when you are no longer able to provide for them. Your family can use the policy payout to cover finances such as mortgage repayments, debts, loans and other living expenses.
Once you have been accepted for cover, you begin paying monthly premiums to your insurer. Failure to keep up with these payments could result in your cover being ended.
Which type of cover is best for my family?
There are two main types of life insurance cover – whole life insurance & term life insurance. These policy types are quite different from each other, both in terms of cost and the length of cover.
Whole life insurance
Also known as ‘life assurance’ this type of cover protects you for the rest of your life. When you die, your insurer pays out a fixed cash amount to your loved ones no matter when you eventually die. It provides your family with peace of mind for the difficult times ahead.
Though one of the more expensive types of life cover, it provides you and your loved ones with permanent protection. Whole life insurance has two main types:
- Balanced cover – The pay-out value is and premium cost is fixed through your cover. The main benefit being that as you get older and more likely to develop conditions, you still pay the same for premiums.
- Maximum cover – Your insurer places the money paid for your premiums into an investment fund. The goal is to make a return large enough to cover the eventual pay-out amount. If the investment performs well, you may receive bonuses. However, it fails your premiums may be increased to cover the loss made.
Term life insurance
Unlike whole life insurance, this policy has an expiry date – known as the policy term. The policy only pays out to your loved ones if you die within this period. You choose the length of your cover in agreement with your provider. This is generally cheaper than a whole life insurance policy.
Term life insurance comes in 3 forms:
- Level term – Standard form of term life insurance , both your payout value and premiums are fixed throughout your cover. This means you won’t need to pay any extra costs as you get older.
- Decreasing term – Designed to cover the cost of large payments such as a mortgage, debt or loan. As you pay-off the outstanding balance, the pay-out of your policy value decreases. This means when you die, your family will be left with enough money to clear the debt.
- Increasing term – The pay-out value increases over time, protecting the eventual amount from inflation. This means your family won’t lose out as the cost of living increases. The downside is that your premiums may also rise alongside.
It is also possible to get joint life insurance for you and your partner/spouse. This covers both you and your partner under a single life insurance policy. It is often considered cheaper and easier to manage than individual policies.
Joint cover works or a first or second death basis. With first death, the policy pays out after the first death of a policyholder, the policy then ends. The surviving member can use this money to support the rest of the family.
Second death pays out after the death of both policyholders – in this case, the money can be used to support your children and their future.
Who needs family life insurance?
You should consider getting life insurance cover for your family if:
- You are looking to start a family or already have one
- You are the sole provider of your family
- You lack the savings to cover your family’s living expenses if you weren’t earning
- You have financial obligations that your family would struggle to pay on their own like a mortgage. Loan or debt
The types of people who may require life insurance include:
- Married couples
- Young families
- Parents with older children
- Single parents
- Long-term partners
How much cover do I need?
The amount of cover you need purely depends on the financial situation of you and your loved ones. You should take into account how much you and your family typically spend as well as any financial obligations you have.
If you provide the main source of income for your household, your family will likely require a higher amount of cover. This cover can act as a replacement wage to support your family when you are no longer around.
On the other hand, if you share financial responsibility with your partner or spouse they may only need limited support.
Amongst many things a life insurance policy can help your family with finances such as:
- Daily living expenses
- Household bills
- Repayments on your homes mortgage
- Childcare support
- Funeral costs
Ultimately, death is one part of life we can’t control, therefore it’s important to ensure protection for the people we love. For more advice, speak to an insurance specialist, today.