What Is Family Life Insurance?
If you have a young family who rely on you financially, Life Insurance can provide valuable peace of mind. It gives you the reassurance, that should you pass away, your family wouldn’t struggle financially. The lump sum pay-out can be used to cover the mortgage, general bills or school and university fees for your children. You set the cover amount at the outset and you can also set the term; the duration you would like the policy to last for.
It is also possible to add Critical Illness Cover, which will pay out the cash sum on the diagnosis of a critical illness which is listed on the policy, in the same way a Life Insurance policy would pay out on your death.
Types of Family Life Insurance
When protecting your family with Life Insurance, there are a variety of policies to choose from.
Term Life Insurance is taken out for an agreed term, for example 10, 20 or 30 years, to cover the specific period of time in which it is needed. This type is popular as a family policy, because it can cover the time you are raising your children. It is the most affordable way to buy life insurance, but only pays out if you die during the term of the policy.
Whole of Life is quite different in that it covers your whole life and does not expire, assuming you continue to pay the premiums. It is designed to protect funeral costs, inheritance tax liabilities or to leave some money to your family when you pass. It is concerned more with covering the liabilities that are sure to arise on your death, regardless when that might be.
Level or Decreasing Life Insurance?
The two most common types of Term Life Insurance are Level Life Insurance and Decreasing Life Insurance.
Level Life Insurance
Remembering that Term Life Insurance policies last for a set number of years – Level Cover requires the same premium and provides the same lump sum to leave behind, if you die at any time throughout the term.
So if you chose a level of cover of £150,000 for example, and a term of 20 years, if you die at any point during that 20 year period, your family would receive the £150,000 lump sum.
Level cover is ideal for:
- Protecting your family to allow them to maintain their standard of living
- Covering your salary when you’re not there to provide it for your family
- Paying off an interest-only mortgage, so your family can continue to live at home
- To pay school or university fees for your children
Do I Really Need Family Life Insurance?
Life Insurance is not a legal requirement, but if you have a young family who relies on you financially, it’s vital you have a backup plan if the worst were to happen. Think about how much money your family would need, to maintain their current standard of living if you were not there to provide for them with your salary. These costs may include your day-to-day bills, a mortgage or rent, school or university fees and more. If these costs cannot be covered by savings; then Life Insurance could be the answer. It can also be used for the purpose of leaving an inheritance behind, or to cover funeral costs or inheritance tax bills.
It’s never a nice thing to think about and subsequently many people put it off. But according to Child Bereavement statistics:
“A parent of children under 18 dies every 22 minutes in the UK; around 23,600 a year. This equates to around 111 children being bereaved of a parent every day.”
Can I Add Critical Illness Cover?
Life Insurance is there to protect your family financially in the event of your death, but what if you were to be diagnosed with a critical illness? You could still be unable to work and earn a living to support your family, just as if you had passed away. Critical Illness cover is available, to add on to a Life Insurance policy, to protect your family in this instance. The majority of Life Insurance policies will pay out early if you are diagnosed with a terminal illness where you are only expected to live less than a year. But there are other circumstances that would not trigger the Life Insurance policy payout, but would render you unable to work and thus maintain the same financial commitments. Such conditions as cancer, stroke, heart attack or a life changing disability could all be accounted for with Critical Illness cover.
The chances of a critical illness are higher than that of death, so Critical Illness is a separate policy and it will add to your premium. But there could be even more costs to pay for surrounding a critical illness than with death; as you will still need to maintain your own lifestyle as well as your family’s, as well as perhaps pay for your own treatment or make alterations to the home.
And What About Income Protection?
Income Protection cannot be packaged together with Life Insurance in the same way Critical Illness cover can, but none-the-less it is relevant as another form of cover for illness and injury.
Income Protection is designed to cover any medical reason why you cannot do your job, and provides a percentage of your wages (before tax) while you are unable to earn. This is paid in the form of a monthly income, compared to a lump sum with Critical Illness.
