As a parent, nothing is more important than ensuring our loved ones are protected financially when we’re no longer there to help. Family life insurance doesn’t refer to a single type of policy - but any type of life insurance cover intended to support families.
How does it work?
Generally speaking, life insurance is designed to pay out a lump sum to your loved ones when you pass away. s. When taking out life insurance cover, you will start paying monthly premium payments to your chosen provider. If you stop paying premiums for any reason, your cover will end and you won’t receive any money for the previous premiums paid.
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Types of family life insurance
Family life insurance is made up of several policy types that can be used to protect the people you love the most. The two main types of family life insurance are term life insurance & whole life insurance.
Term life insurance provides cover for a set period of time. A cash lump sum is payable when you die - so long as it is within the policy term. It works in three forms - level term, increasing term & decreasing term.
Level term - the policy payout is fixed throughout the length of the policy
Increasing term - the payout amount increases over time to help offset the effects of inflation - though note that your premiums will increase too.
- Decreasing term - typically used to cover a large debt like a repayment mortgage. The payout decreases over the policy term - usually by a fixed percentage stated when you take out the policy.
A family income benefit policy works slightly differently to standard life insurance policies. Instead of paying a cash lump sum, family income benefit pays out a regular tax-free figure (typically monthly). This money can be used to support your family during the difficult times ahead.
Another type is joint life insurance - which covers two people under a single policy. This is a popular choice amongst spouses and couples, with or without children. A joint policy can work out cheaper and easier to manage than separate policies. Joint life insurance usually pays out after the first death in the partnership when written on a ‘joint life first death’ basis.
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Whole life insurance(also known as ‘life assurance’) works so that you are covered for the rest of your life - so long as you continue to pay your premiums. Usually, whole life insurance is more expensive than term life insurance, as you are guaranteed a pay-out. There are two main types of whole life insurance:
Balanced cover - this is the standard form of whole life insurance, your premiums and pay-out amount are fixed throughout the policy.
- Maximum cover - Your policy is linked to an investment fund. Your insurer invests the money from your premiums to cover the eventual pay-out sum. You can also receive bonuses if your investment performs well, however, if it underperforms your premiums may be increased.
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Who needs family life insurance?
Hindsight is a wonderful thing but none of us can predict when we will die exactly. That’s why it’s always best to have a family life insurance plan in place - should the worst happen. There are a number of people who can benefit from buying family life insurance such as:
Young families - Nobody wants to leave their spouse or partner to raise their children alone. Family life insurance can provide the necessary funds to pay for childcare and everyday living expenses.
- Older families - As our children get older, things become more expensive. Even if you’re no longer around you can still help towards things such as driving lessons, their first car, or even university fees.
Couples & spouses - Consider the impact on your household if one of you were to pass away. Life insurance can help ensure your partner is supported when you die.
Single parents - Whether you have young or older children, as a single parent a pay-out can secure your children’s future. This money can support them through to their next chapter in life - even starting a family of their own.
- Homeowners - None of us wants to leave our family struggling to pay off an outstanding mortgage balance. With policies like decreasing term life insurance (typically taken out by those wanting to cover a repayment mortgage), you can ensure the remaining mortgage is paid for upon your death.
How much cover do I need?
The amount of cover needed depends on the financial circumstances of you and your family. For example, if your family would struggle to get by without your income, they would require a larger amount from the eventual pay-out. Ultimately, family life insurance can help your family with finances such as:
Everyday living expenses
Rent or mortgage payments
Utility bills and other household costs
Outstanding debts and loans
Childcare support
Educational costs such as school and university fees
Funeral expenses
Stay one step ahead
It’s best to assess the financial impact your death could have on your family in order to understand how much cover you may need. At Cavendish Online, we understand how important it is to protect your family at all costs. That’s why we’re on hand to help you find the right policy for the best price to protect your loved ones.
If you have any queries about life insurance or need help finding the right policy, get in touch with us online via our contact form. Or if you would prefer to talk over the phone, call 03456 442 540 to speak to one of our friendly insurance advisors, today!
