Worried about how your family could cope financially if something were to happen to you? Traditionally there are two ways to support your family after death. You can either write a will, in which your estate is shared out amongst your family. Or you can take out a life insurance policy, which pays out a lump sum to your loved ones when you die.
However, the value of your estate may not be enough to provide your family with the support they need. In this case, family life insurance is a great way to ensure your family is provided for should the worst happen. So how does it work and when should you apply?
What is family life insurance?
Family life insurance is a term used for any type of life cover used to pay out to your loved ones when you die. Your family can then use this money to help cover any finances during this difficult time.
Once you take out a policy, you begin paying monthly premiums to your insurer. You need to continue making premiums to remain covered. Failing to keep up with your monthly payments could result in your insurer cancelling your cover. In this case, you won’t receive any money for the premiums paid previously.
What are the types of cover available?
When it comes to buying a family life insurance policy, there are two main types of life insurance cover. These types are whole life insurance & term life insurance – which both differ in terms of cost and length of cover.
Whole life insurance (also known as life assurance)
Whole life insurance provides long-term protection, paying out no matter when you eventually die. Once this happens your insurer issues a cash lump sum to your loved ones.
With whole life policies, your premiums and pay-out are fixed throughout the duration of cover. Because of this, it’s beneficial to take out cover when you are young to lock in cheap premium rates throughout your cover.
Whole life cover is also one of the more expensive types of cover, however, your family is guaranteed a pay-out, not to mention peace of mind.
Term life insurance
Unlike whole life insurance, term life policies only provide cover for a set period of time (for example 20 years) known as the ‘policy term’. Your policy will pay out to your family – assuming that you die within this time. If not, the policy expires and no payout will be made to your family.
There are three levels of term life cover:
- Level term – The pay-out value of the policy is fixed throughout your cover, along with the cost of your premiums. For the cheapest premium rates, it’s best to get this cover at an early stage.
- Decreasing term – Sometimes known as ‘mortgage life cover’, this type of cover is designed to cover large payments like a mortgage. The payout decreases over time as you make repayments.
- Increasing term – The pay-out increases overtime to protect the future amount from inflation. However, your premiums may also increase because of this.
Term life insurance is typically cheaper than whole life cover as it only provides temporary cover. So, if you’re looking for a cheap life insurance policy, term life cover may be an ideal solution for you and your loved ones.
You can also get a joint life insurance policy – this is beneficial for couples who share financial responsibility of the household. Joint policies can be easier to manage than taking out two separate policies.
There are two types of joint life policies – first and second death. First death policies payout after the death of one of the policyholders. The policy then ends meaning the surviving member would need to take out further cover if required.
Second death policies payout once both you and your partner have died. The pay-out can then be used to provide financial support for your children, helping them with future costs.
When should I buy cover?
Not all of us will start a family straight away, however, it’s best to buy cover at the earliest stage. This is when premiums are typically at their cheapest – this is because you are less likely to develop medical conditions at such an age.
Whole life cover, as well as level term cover, has fixed premiums meaning you’ll pay the same amount to your insurer each month. These types of policies are worth buying at an early stage to keep your premiums at a low.
How much cover will my family need?
Before you take out cover you should look at your family’s current financial situation and how your death would impact it. The pay-out from a life insurance policy can help your family cover costs such as:
- Everyday expenses
- Household bills
- Mortgage repayments
- Outstanding debts
- Funeral planning
Assessing your current finances can prevent you from overspending on cover. For example, if your family can still get by financially without your support, they’ll likely need less cover than if your family depends on your income.
Head online today to apply for cover and get the financial protection your family deserves!