Family Life Insurance: Reviewing Your Options
Worried about how your family would cope financially in the event of your death? Although it’s never pleasant to think about a future without yourself in it, there’s one sure way to help your family should the worst happen. Family life insurance, in particular, is an ideal option for providing financial protection for the people who mean the most to you…
What is family life insurance?
Family life insurance is a type of life cover designed to provide financial security for your loved ones after you die. Rather than being one specific type of policy, it’s made up of a range of policy types – which we’ll get to shortly.
There are two main ways to provide your family with peace of mind if the worst happens. You can either write a will, ensuring your estate is shared with your family. Or, you can buy a life insurance policy – in this case a cash lump sum is paid out to your family when you do.
Once you take out a policy, you begin paying a monthly premium to your provider. Failure to carry out these payments can result in your insurer ending your cover. If this happens, you won’t be able to claim a return on the premiums paid up until that point.
The main ways to protect your loved ones
When it comes to buying a family life insurance policy, there are two main types of cover available – term and whole life cover. Each of these policy types has different benefits, costs and features…
Whole life insurance
As the name suggests, whole life insurance cover protects you for the rest of your life. When you die, your insurer pays a lump sum to your family, helping them cover various costs. The policy has a fixed term – meaning it pays out regardless of when you die.
In addition, both the pay-out value and premium costs are fixed throughout the policy. Whole life insurance is typically more expensive than other types of cover; as it provides permanent protection.
Term life insurance
This is the cheapest form of cover – but only protects for a set period of time (for example 25 years). Term life insurance pays out a cash lump sum to your family, providing you die within the policy term. Should you outlive the cover term, the policy expires, and you won’t receive any money back on the premiums paid previously.
There are 3 types of term life insurance cover:
- Level – The payout amount of the policy stays the same throughout the term. Your premiums are also fixed throughout.
- Increasing – The payout increases over time to protect its value from inflation. This way, your loved ones receive the same amount as previously. As a result, your premiums may also be increased.
- Decreasing – Designed to protect large payments like a mortgage. The pay-out value decreases as you make repayments towards the outstanding balance.
You can also get joint life insurance – this covers both you and your spouse under a single policy. Joint policies are considered an ideal option for couples, as they can be easier to manage and cheaper than separate policies.
Critical illness cover is another option you can opt for. This can be purchased as an add-on to an existing policy, which the policy pays out if you’re diagnosed with a critical illness. This type of cover can help you and your family maintain your finances if you are unable to work.
Which is better?
So now that you know how each type of cover works, which one is best for you? Both whole life and term life insurance have a range of pros and cons, but ultimately it depends on your circumstances.
For example, if you’re looking to cover a mortgage, decreasing term life insurance may be a better option than whole life insurance. However, if you want to support your children’s future, then a whole life policy should suffice.
Along with providing a fixed pay-out value and premiums, there are notable pros and cons for each type of cover…
Whole life cover:
- Pro – provides permanent cover
- Con – more costly than other policy types
- Pro – includes investment opportunities
- Con – penalties can occur if you decide to cash-in your policy at any stage
Term life cover:
- Pro – Generally cheaper than whole life policies
- Con – Only provides cover for a certain amount of time (as opposed to permanent coverage)
- Pro – Ideal for covering large payments such as a mortgage
- Con – The policy only pays out if you die within the policy term
Choosing the right amount for cover
Essentially, the pay-out from your life insurance acts as a replacement of your monthly income. This way, your family can continue to cover any finances they may otherwise struggle to maintain without your support. The amount of cover you take out should reflect the monthly outgoings of your beneficiaries, helping them with future costs such as:
- Various living expenses
- Utility bills for your home
- Covering funeral costs
- Paying off the outstanding balance on a mortgage
- Providing support for our children (such as university tuition)
Sadly, no one can be certain of when we’ll die, the futures not ours to see. However, we can ensure there is cover in place to support our loved ones during this difficult time. Head online today to get the cover your family deserves.