What is a family life insurance policy and how does it work?

One thing is certain for many of us - family comes first. We all want to protect our loved ones, but actions speak louder than words. That's why it may be time for you to look into buying a family life insurance policy.  Nothing in life is free, but peace of mind is priceless.

In this article, we'll look at some of the queries you might have before considering a policy, such as:

What is a family life insurance policy?

To start with, it's important to note that family life insurance is a term used to describe a life insurance policy intended for you and your family. Like all life insurance policies, when you die, your insurer pays out a lump sum to your family.

Some policies work differently from others - for example, term life insurance will only pay out so long as you die within the agreed policy term. Naturally, the right type of policy will depend on you and your family's circumstances.

The types of family life insurance policies

As we learned before, life insurance policies can work differently from each other as well as how much they are likely to cost you. There are two main types of life insurance - Whole of life & term life and though they sound similar, what they offer is different.

Term life insurance

As mentioned previously, term life insurance covers you for a specific length of time - referred to as a 'term'. This type is usually cheaper than whole of life insurance, but you don't have the added comfort of a guaranteed pay-out. For example, if you take out a policy that covers you for 20 years; if you die 21 years later, your family won't receive a pay-out as the policy will have already expired.

Term life insurance is usually taken out to cover outstanding finances like a loan or mortgage. When you die your family can pay these off using the lump sum payout from the policy. Term life insurance can be sorted into 3 different types of cover - level term, increasing term & decreasing term.

• Level term cover - Your family receives the same pay-out amount, whether you die in the first 5 years of your policy or 20 years into it. The downside to this is that the payout amount is not protected from inflation. This means that the value of the policy - in terms of the cost of living, may be worth less than when you originally bought it.
   

• Increasing term cover(sometimes known as ‘Indexed’ or ‘Index Linked’ cover) - Your insurer will increase the value of your pay-out over time, to protect it from inflation. This means that when you die, your loved ones receive more money than when you first began the policy to keep up with the cost of living. Though the pay-out increases, so too might the cost of your premiums.
   

• Decreasing cover - This type of cover is designed to be taken out alongside a debt or loan, such as a mortgage. As you pay off outstanding payments, this policy pay-out decreases. If you die before paying off these payments, your family can use the policy pay-out to cover the amount owed should they wish to.

Critical illness cover

Critical illness can be bought as both an add-on to your life insurance policy or as a separate standalone policy. This type of cover provides you and your family with financial aid, should you be diagnosed with a critical illness of specified severity. . The specific illnesses that are covered depend on the provider, so it's best to check your policy before you buy.

Some insurers may provide coverage for your children. You can then use the pay-out towards medical care to ensure they get the best treatment available. 

There is also terminal illness cover - this typically pays out a lump sum if you are diagnosed with an illness and will die within the next 12 months.

Income protection insurance

Income protection insurance will pay out if you are unable to work due to illness, injury after a specific period of time (known as the ‘deferred period’). This can be bought as both a short or long-term policy, providing you and your family with financial support when you need it the most.

What does a family life insurance policy cover?

Life insurance can be used to help you financially in a number of ways, for example:

• Helping towards any loans or debts your family has.
   

• Paying off the remainder of your mortgage.
   

• Acting as an inheritance for your children.
   

• Assisting with funeral costs.
   

• Helping towards living costs or mainitaining your loved ones standard of living.
   

• Education costs, such as university or school fees.

How the policy pay-out is used depends on the type of life insurance as well as changes in circumstances. Usually, you'll have an idea of what you want your policy to cover beforehand.

How can I keep policy costs down?

There are a few ways in which you can keep the cost of your policy down, like:

• Getting cover when you are young - life insurance becomes more expensive the older you get, so bear in mind that any delay in purchasing is likely to lead to higher premiums.
   

• Quit smoking - we all know smoking is bad for your health, but if you need another incentive to quit, it can reduce your monthly life insurance premium costs.
   

• Consider a joint life insurance policy - if you and your significant other shares an income, you may find it cheaper to take out a joint policy, instead of two single policies. Not only is it cheaper, but it may also be easier to manage.

Find the right policy for you & your loved ones

If you are looking for a policy or have any queries in general, we’re here to give you a helping hand. At Cavendish Online we are just a phone call away from helping you find the right insurance policy for you and your family for the best price.