Do I Need Family Life Insurance?

Starting a family is a wonderful part of life, but what if something happens to you and you are no longer around to provide for your loved ones? With family life insurance you can ensure your family is protected financially for the future, giving you all peace of mind. But what is family life insurance and how does it work? In this article we’ll look at:

• Family life insurance: what is it?
• Types of family life insurance
• Do I need family life insurance?
• When to buy family life insurance?

Family life insurance: what is it?

A key thing to note is that family life insurance is not a type of life insurance policy or plan but actually refers to types of life insurance plans suited for families. With life insurance, you pay monthly premiums to your provider to be covered in the event of death. When your policy pays out a lump sum to your family to provide financial security for when you’re no longer there to help.

Whether you are newly-weds or you’ve just had your first child, you’ll want to make sure they’re protected for the future. As you go through life, different types of life insurance will seem like the better option, but it’s important to look at the short and long term aspects of each policy type. The pay-out from the policy can help your family pay towards debts and loans such as a mortgage, as well as everyday living costs.

Types of family life insurance

We are all different and so we all need different types of life insurance. Though there is no single policy that can cover both you and your family, there is a range of options that can provide protection.

Whole of life insurance

A whole of life insurance policy ensures your family a guaranteed payout when you die. This type of policy can also be known as life assurance. As the name would suggest, whole of life insurance covers you for your entire life – just so long as you keep paying your premiums (either monthly or annual). 

There are two main types of whole of life insurance – Balanced cover (also known as standard cover) & maximum cover:

• Balanced cover works out so that your premium costs remain the same throughout the policy. When you die a fixed cash sum is paid out to your family. The benefit of this type of policy is that even as you get older, you’ll still pay the same amount for cover.
• Maximum cover works out different as the money you pay for your premiums is invested by your insurer. The aim is that your insurer invests the money you pay each money, to hopefully make a return on the investment. Unlike balanced cover where your policy is fixed, maximum cover policies are often reviewed by your insurer. Should the investments made fail to pay off, your insurer may alter the cost of premiums and pay-out of the policy.

Though a maximum policy starts off cheaper than balanced cover, the premiums are likely to rise over time, making it more expensive in the long term.

Term life insurance

Term life insurance (or term assurance) is usually cheaper than whole of life insurance as it covers you for a certain period (i.e. 20 years) as opposed to the whole of your life. This policy pays out so long as you die within the agreed period to provide your family with a financial boost. Term life insurance usually comes in three forms:

1. Level term – This is where the pay-out amount remains the same during the length of your policy. Though the pay-out stays the same over time, it can be affected by inflation. This means that the cash value of the policy will be actually less than when the policy began, despite remaining the same figure. 
2. Decreasing term – This type of policy is often taken out alongside a mortgage. It works out so that as you gradually pay off your mortgage loan, the pay-out of your policy decreases. The benefit of this policy is that if you die before the mortgage is paid off, your family can use the policy pay-out to pay it off in full.
3. Increasing Term – Unlike decreasing term, this type of cover is protected from being affected by inflation. Your pay-out increases over time to match the rise of inflation from when you took the policy out. The downside is that because the pay-out increase so will your premiums.

Income protection insurance

Income protection insurance pays out part of your monthly income if you are unable to work due to sickness or injury. This is to provide support for you and your family in this tough time. Your policy can payout up to 80% of your salary, tax-free.

Critical Illness Cover

Critical illness cover is an additional form of cover to a life insurance policy. This add-on covers you and your family in the event if you were to become seriously ill or injured. Should this happen (though we hope it doesn’t!) you will receive a pay-out to support you and your family through this difficult time.

Your family benefit from this most, especially if you are the main income provider from the family. If you become seriously ill or injured your loss of income is re-paid from the policy pay-out. Some providers may also allow you to take out cover for your children, which you can make a claim if they too were to become seriously ill or injured. The pay-out could be used for private healthcare costs to boost their recovery, easing a difficult situation.

Mortgage protection insurance

Mortgage protection is another way for you to provide financial support to your loved ones when you are no longer with them. This insurance policy covers your mortgage in the event you die and it hasn’t been paid off yet. Though it’s similar to Decreasing term life insurance, mortgage protection will cover the cost of your mortgage if you also become seriously ill or injured and can’t work.

Do I need family life insurance?

Whether or not you need life insurance for your family is mainly determined by your own circumstances. Of course, if you don’t have a partner or children there is no need to take out a policy. However you may want cover for you and a sibling or parent, so it’s always worth looking into.

There are numerous reasons you might need to buy life insurance for yourself and your family. Family life insurance can help towards costs like:

• Any household bills and day-to-day expenses
• Outstanding debts and loans, such as a mortgage
• Your family’s living expenses
• Funeral costs
• Education costs such as university loans and fees
• Gifting additional money to your family

It’s also worth considering a joint life policy as this covers two people under one policy – rather than taking out individual policies. This policy is popular with spouses and partners. It is usually cheaper and much easier to manage than two single policies.

When to buy family life insurance?

Before taking out a life insurance policy, it’s important to understand the factors that determine the cost of life insurance. When you apply for a life insurance policy, your insurance provider will ask you a few questions about your:

• Age
• Health
• Height & weight
• Occupation
• Lifestyle
• Whether you smoke

It’s important to answer all of these questions as truthful and accurate as possible, as you can run the risk of having your policy voided. It’s best to buy life insurance when you are young to save costs on your policy. If you are a smoker, there is still a way to reduce costs to your policy. Some providers will reduce the cost of your premiums if you quit smoking or have been smoke-free for at least a year.

Before you rush into anything, it’s best to speak to an insurance broker as they can offer you guidance and help you find the best policy for the right price.