Protect your loved ones with family life insurance
Unfortunately, it’s a sad fact that a child loses a parent every 22 minutes in the UK[1].
This not only creates an enormous emotional void, but also a financial one.
Leaving your family with the shortfall of a lost income, expensive childcare fees and other living costs, including mortgage payments.
In the UK:
- £231,713 is the average cost of raising a child to 21 years[2]
- £121,687 is the estimated average outstanding mortgage per household[3]
- 35% of households have no savings at all[4]
- £222.36 per week is the cost for full-time childcare[5].
The above statistics highlight the importance of having family life insurance to prevent your loved ones having to undergo drastic lifestyle changes or potentially having to sell the family home.
Despite this, only 50% of UK parents have family life insurance in place.
But did you know you can secure family life insurance for as little as 20p-a-day?
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What is family life insurance?
Family life insurance is simply a way of describing life insurance taken out to protect your loved ones’ financial security if you were no longer around.
Depending on the sort of cover you’re looking to provide your family, there are various policy types available.
These can either provide a one-off lump sum to cover large expenses like a mortgage, or on-going monthly payments to replace a lost income and cover day-to-day living costs.
Both types of family life insurance require monthly premium payments into the policy and if the worst were to happen, your loved ones could make a claim.
Family life insurance policy types
There are a variety of policy options available to suit differing family needs and budgets:
Level term life insurance
Level term life insurance pays out a fixed lump sum, regardless of whether you pass away at the start or the end of your policy.
This type of policy is ideal for providing your family with a large pay out to cover costs such as an interest-only mortgage, funeral expenses and/or outstanding debts.
Decreasing term life insurance
Decreasing term life insurance also provides a lump sum pay out if the worst were to happen to you, however, the value of this sum decreases over the policy term.
Therefore, the later into the policy you pass away, the less your family will receive.
The sum assured (or pay out amount) usually decreases in line with your mortgage, protecting your family’s home.
Generally speaking, this is the cheapest form of life insurance and is best suited to cover a repayment mortgage.
Family income benefit
Unlike traditional life insurance, which pays out a lump sum, family income benefit provides tax-free monthly payments to your family.
Regular income payments start from the date you pass, until the end of the policy term.
This type of cover is ideal for replacing a lost income, covering daily living costs or paying for additional childcare if required.
Term-based cover
All of the above policy types; level, decreasing and family income benefit, are all term-based. This means your beneficiaries can only benefit if you pass away within the set term.
Family whole of life insurance
Whole of life insurance lasts for the rest of your life and therefore unlike life insurance, guarantees a pay out. This is a form of life assurance.
As with traditional life insurance, upon your death a lump sum pay out is made to your family.
Whilst this type of policy is often used for similar purposes as level term cover, depending on your age and how long you live, it’s possible to pay more into the policy than it will pay out.
For this reason, whole of term policies are typically more suitable for those in later life, (perhaps with adult children or looking to cover their partner).
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Multiple family life insurance policies
Unlike other forms of insurance, it’s perfectly legal to have multiple life insurance policies in place simultaneously.
As discussed, different policy types are better suited to protecting different elements within your life.
Therefore, if you’ve various aspects you’re looking to protect, such as a mortgage, family living costs and your funeral, you may find it beneficial to take out multiple policies.
For example, a decreasing term policy to protect your repayment mortgage and family income benefit to cover day-to-day living expenses.
Of course, this will depend on your budget, but it’ll allow for a higher level of cover to ensure your family are not subject to financial strain should the worst happen.
Life insurance for all the family
With families taking many shapes and forms nowadays, deciding who to cover and how may not always be straight forward.
Covering your children
The possibility of obtaining life insurance for your children is often questioned. After all, they’re usually the most precious people in our lives.
Due to no loss of income impacting the ability to meet daily living costs, it’s often not deemed essential to secure life insurance cover for your children.
Instead, it’s far more beneficial to secure life insurance for yourself and therefore, protecting the financial future of your loved ones.
Covering stay-at-home parents
Stay-at-home parents, on the other hand, are often considered to not need life insurance as they don’t contribute a tangible income.
However, when taking into consideration all the unpaid jobs they carry out, it’s easy to understand the need for cover.
- How much additional childcare would be required?
- Would working hours need to be reduced?
- Who would do all of the cooking, cleaning, taxiing…
Research from Bidvine suggests the average death of a stay-at-home mum would equate to a loss of £80,000 a year.
When deciding who to cover within your family, it’s important to consider the financial impact their death would have on your families lifestyle and arrange protection accordingly.
Family life insurance with terminal illness cover
Most family life insurance cover now offers policyholders terminal illness cover as standard.
Terminal illness protects you if you’re diagnosed by a medical professional with a terminal condition and are predicted to die within 12 months.
Having access to your life insurance pay out before you pass could help clear your mortgage and offer you peace of mind, knowing your family will be financially secure.
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Family life insurance with critical illness cover
It’s also possible to add critical illness cover to your life insurance or as a standalone product.
This offers another layer of cover protection for your family.
Critical illness provides a lump sum pay out if you’re diagnosed with a serious, yet non-life threatening, illness.
A pay out can be used to cover a lost income if you’re unable to work or to fund necessary adaptations to your home.
This cover type also provides your family with further protection, as most critical illness policies also extend their cover to your children.
This means that a pay out will also be made if your child is diagnosed with a serious or life-threatening illness.
Again, this pay out can be used to cover time away from work to care for your sick child or to fund expensive medical treatments.
The cost of family life insurance
The cost of your family life insurance will be based on the level and length of cover you require, as well as your personal circumstances.
Life insurance premiums are calculated based on the level of risk you pose to the insurer.
To determine this, they’ll require information regarding your age, weight, health and smoking status upon application.
This is then processed via their underwriting specifications and a monthly premium is calculated.
As a result, it’s best to take out family life insurance when you’re young and statistically less likely to claim.
This allows you to lock in a super-low premium for many years to come.
How much life insurance do you need?
Whichever policy type you take out, you’ll want to ensure your family is comprehensively covered for the necessary period of time.
To establish how much cover you need and how long you require cover for, you should ask yourself some key questions:
- How many dependants do I have?
- How long will they depend on me financially?
- What’s the size of my mortgage?
- What debts do I need to cover?
- What’s my monthly budget?
- Do I have any cover through my employer, (death in service)?
Once you’ve answered the above questions, it’s a good idea to contact an FCA registered life insurance broker, such as Reassured.
We’ll be able to discuss with you the various policy solutions available and the best quotes we identified.
Extending your family
Throughout family life, it’s likely your personal circumstances will change.
Whether this is moving to a larger family home or having another child.
Both of these scenarios are likely to require alterations to the level of life insurance cover you require.
A special events option can be triggered on your existing family life insurance to make the necessary changes.
This means that the sum assured can be altered and your premiums adjusted accordingly, without the need for additional underwriting.
It’s important to re-evaluate the cover you have in place should your family situation evolve.
Joint family life insurance
Taking out a joint life insurance policy allows you to cover both you and a partner simultaneously.
Joint policies are approximately 25% cheaper compared with two single policies. However, it’s important to remember that they’ll only ever pay out once.
Therefore, in the unthinkable event of both parents dying together, only one pay out would be issued.
This may not be sufficient to cover the financial shortfall of losing two household incomes.
In order to provide your family with adequate protection, it’s often more beneficial to secure two single policies, which could result in two pay outs.
Write your family life insurance policy in trust
In life insurance terms, a trust is a legal arrangement designed to ensure that the pay out from your policy is distributed as you intended.
The policy is looked after by a trustee until the time comes for the benefit to be released to your loved ones, (for example, when your children turn 18).
Because the policy has been written in trust, the pay out avoids forming part of your estate.
This means the proceeds are not subject to 40% inheritance tax and your beneficiaries receive a greater proportion of the pay out.
The key benefits of writing your policy into trust are:
- Avoid or minimise 40% inheritance tax (over the £325,000 threshold)
- Avoid the lengthy probate process (for a faster pay out)
- Have more control over who gets the funds and when.
At Reassured, we have a dedicated trust team who can help you write your life insurance in trust. This service is free.
Compare family cover quotes, (save yourself time & money)
Life insurance premium costs can vary significantly between insurers.
As a result, it’s essential to compare quotes to ensure you’re getting the best family cover, at a price you can afford.
At Reassured, we can do the hard work on your behalf, identifying the very best available quotes.
Our large panel of insurers means that we can compare a wide range of the UK’s leading providers to secure you the perfect cover.
And the best part of all – Our award-winning broker service is free of charge to you.
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Sources
[1] & [4] http://www.childhoodbereavementnetwork.org.uk/research/key-statistics.aspx
[2] https://themoneycharity.org.uk/money-statistics/september-2017/
[3] https://themoneycharity.org.uk/money-statistics/51592/
[5] https://www.moneyadviceservice.org.uk/en/articles/childcare-costs