What is family life insurance?
Family life insurance is simply a way of describing a life insurance policy taken out to protect your loved ones’ financial security, if you were no longer around.
This type of protection commonly takes the form of level term cover, which pays out a fixed lump sum if you were to die at any point during the policy.
There are other policy options available to protect your family, such as family income benefit or whole of life.
There is also decreasing term cover which is generally used to protect a family home with a repayment mortgage.
All of these family life insurance options are explained in detail below.
Who might need family life insurance cover?
Family life insurance is a very good idea if you have dependents who rely on you financially, be it children, a spouse or partner.
If you were no longer around would your family be able to afford to continue living in the family home? Would your loved ones be able to maintain their current standard of living?
With comprehensive family life insurance, you can protect your loved ones.
Financial data from the UK suggests:
- £231,713 average cost of raising a child to 21 years
- £121,687 estimated average outstanding mortgage per household
- 35% of households have no savings at all
- £222.36 per week for full time childcare.
Despite this, according to Legal & General, almost a half of parents do not have any life insurance.
The benefits of family life insurance:
- Provide a financial safety net for your dependents
- Cover your mortgage debt or future rental costs
- Replace your income
- Cover day-to-day living costs (food, clothing, transport, fuel)
- Cover household bills (gas, electricity, council tax, water)
- Fund childcare costs (nursery, child-minder, nanny)
- Provision for your children’s education (university, tuition fees)
- Ensure your family can maintain their standard of living
- Cover funeral expenses
- Provide an inheritance for your children or grandchildren
- Provide peace of mind your family will continue to be provided for.
Level term cover
Level term is a popular form of life cover which pays out a fixed lump sum to your beneficiaries if you die during the term.
Regardless of whether you die at the start, or at the end of the policy, the pay out remains fixed. Your monthly premiums generally remain the same too, (guaranteed premiums).
If you like certainty level term is generally a good option; you know what you have to pay each month, the pay out amount if you die and how long cover lasts.
You decide on the pay out amount and the policy length, which can be anything from 5 years, to 50 years or more.
To fully protect your family, you can set the sum assured at a level which covers the mortgage and provides for your family both now and in the future.
Family income benefit
Family income benefit, unlike traditional policies that pay out a lump sum, provides your beneficiaries with a monthly, fixed, tax-free income.
Regular income payments start from the date you pass, until the end of the policy term. No benefit is provided if a claim has not been made before the policy ends.
Family income benefit plans can be well suited for parents with young children, who want an affordable way to ensure that their dependents are protected.
A regular income instead of a cash lump sum could also help with long-term family budgeting.
Another advantage of family income benefit is it does not require your beneficiaries to budget, manage or invest a large sum. This can involve complicated investment decisions, which could incur fees or taxes.
Premiums for these policies tend to be very affordable as the risk to the insurer reduces as time goes on, unlike level term.
Whole of life cover
A whole of life policy guarantees to pay out a lump sum to your beneficiaries when you die. As a result, whole of life cover is sometimes called life ‘assurance’, because your policy is assured to pay out.
Whole of life belongs to the ‘cash value’ category of life insurance and cover differs from the more common term-based policies, which only pay out if you die during the term.
As with other policies, you pay a monthly premium, (guaranteed or reviewable) and when you die, a fixed lump sum pay out is made to your loved ones.
However, because a pay out is guaranteed (assuming you pay your premiums) the cost of premiums is generally higher compared with term-based policies.
(Please note: ‘investment’ whole of life policies do not guarantee a fixed lump sum pay out, however, at Reassured we only sell ‘non-investment’ policies).
A combination of different policies
Subject to your available budget, it may not need to be a case of having either a term based policy or family income benefit cover.
For example, you could use term based cover to take care of the mortgage and use family income benefit to provide a regular income for living expenses.
How much cover do you need?
Whichever policy type you take out, you will need to ensure your family is comprehensively covered.
To establish how much cover you need you should ask yourself some key questions:
- How many dependents do you have?
- What’s the size of your mortgage?
- What debt’s do you need to cover?
- What’s your budget?
- Do you have any cover through your employer, (death in service)?
Learn more about the cost of raising a child in the UK, by reading Child Poverty Action Group’s ‘Cost of a Child in 2017’ report.
Take out cover when you are young
Although many of us do not think about life insurance when we are young, it is actually the best time to take out cover, as you can secure very low premiums.
The longer you leave taking out a policy, generally, the more expensive your premiums will become, (as statistically you are more likely to make a claim).
From our experience, there are common life events which trigger us into taking out life cover. Like having a baby or buying a house.
Why not be proactive and arrange cover today, locking in the cheapest premiums?
Guaranteed vs reviewable monthly premiums
When you take out a life policy to protect your family, you have a choice of guaranteed or reviewable premiums.
If you choose a guaranteed premium, your insurer will never change the cost. You always know what you are going to pay each month throughout the policy.
In contrast, reviewable premiums normally cost less at first, but your insurer can increase costs during the term.
So, what seems initially like a cheaper policy may in the long-term prove to be more expensive.
Write your family life insurance in trust
In life insurance terms, a trust is simply 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 beneficiaries.
Because the policy has been written in trust to the trustee/s, the pay out avoids forming part of your estate.
The 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.
Joint or 2 single policies?
You may already have a joint mortgage and bank account together, so why not a joint life insurance policy to protect the family too?
There may be a small saving to be made by taking out a joint policy, rather than 2 singles policies.
However, it is important to remember that a joint policy will only ever pay out once, normally on the first death.
In order to provide your family with more protection it may be more beneficial to secure 2 single policies, which could result in 2 pay outs.
Another consideration is, what if the relationship breaks-up? If you have a joint policy, this is likely to mean you have to cancel the policy.
You would then need to take out a new policy when you are older, paying more on your monthly premiums.
Terminal illness cover
Most family life insurance cover now offers policyholders terminal illness as standard.
Terminal illness cover protects you if you are diagnosed by a medical professional with a terminal condition or illness, and are predicted to die within 12 months.
Having access to your family life insurance pay out before you die could help clear your mortgage, pay for necessary home alterations or a carer.
Critical illness cover
You can also opt to include a critical illness element on your family life insurance.
Critical illness cover pays out a lump sum if you suffer a life-changing illness or condition. A critical illness is highly likely to impact on your ability to work/earn, however, is not expected to result in your imminent death.
Conditions commonly covered include heart attack, a stroke, Alzheimer’s disease, Parkinson’s disease and MS. Please note; different policies will cover different critical illnesses.
Important things to consider with family life insurance:
- There are multiple policy options available to protect your family’s future
- It is a case of identifying which cover best meets your needs and budget
- Work out how much cover protection you require
- The younger you are when you set up a policy, the cheap it is
- Family cover can include critical illness and terminal illness elements
- To ensure your family receive the maximum benefit you can write your policy in trust
- Cover will end if you do not keep up with your monthly premiums
- You may need to factor in rising living costs, to protect your family’s long-term future.
Why use Reassured to secure the best family protection policy?
- We have vast experience securing 1000’s of customers comprehensive family life cover
- Life insurance is what we do, (it is all we do), day in and day out
- We will search the market on your behalf, finding the most suitable and competitive quotes available
- 13,500 cannot be wrong! We have an ‘Excellent‘ average Trustpilot rating – 9.6/10
- We are completely independent, impartial and never charge a fee
- There is no obligation for you to take out the cover we find
- We are a non-advised brokerage – we simply listen to your unique circumstances and find the most suitable quotes.