Family life insurance
A life insurance policy will pay out either a regular income or a fixed lump sum to your family in the event of your death, helping them to cope financially in the most difficult of times.
In This Guide:
- Term insurance vs. whole of life cover
- Decreasing debts
- Joint life insurance
- Critical illness and terminal illness cover
- Costs of cover
- Writing a life insurance policy in trust
- Compare family life insurance quotes online
Term insurance vs. whole of life cover
When you take out a life insurance policy, you’ll have the option of either getting cover for a fixed term, usually around 25 years, or for the whole of your life.
If you choose a term insurance policy, your family will receive a pay out if you die within the set period, however once this period is up, you will no longer be protected.
These policies are usually cheaper than whole of life policies, which assure you a pay-out in the event of your death, whenever this may be.
Many people take out life insurance policies with a focus on paying off a mortgage or any other debts should you no longer be able to keep up with repayments due to your death.
If this is the case, then you might want to opt for a life insurance policy with a decreasing pay out, reflecting the decreasing value of your debts over time.
Another option you might want to go for in family income benefit. A policy of this kind will pay out a regular income to your family for a set period of time starting as soon as the claim is made.
Joint life insurance
Couples often choose to open a joint life insurance policy that will cover both parties with a single pay out when the first partner dies. Such policies are cheaper due to the shared premium and a different value can be set for each partner depending on, for example, who is the main earner in the household.
Critical illness and terminal illness cover
Both critical illness and terminal illness cover are available as independent products or as add-ons to other family life insurance policies.
They are similar in that both will pay out in the event that you contract a particular illness, or one of a list of particular illnesses, and are therefore no longer able to work and earn.
Cover of this kind can be particularly helpful if you are the main household earner and will help your family pay for any outstanding debts, keep up with day-to-day household expenses, and pay for any medical costs incurred as a result of your illness.
Costs of cover
The cost of your family life insurance policy will depend on your health and age as well as, of course, the size of the pay-out you require and the length of the policy term.
If you are older or if you have any existing health problems (including any serious illnesses you’ve had in the past), your premiums will be more expensive.
If you have a policy open and during its course you have another child, then you might want to consider changing the policy terms and the size of the pay out in order to accommodate for the increased financial needs of your family. This will again serve to increase the cost of your premiums but is often considered a necessary expense and rightly so.
Writing a life insurance policy in trust
One option available if you want to maximise the benefits received by your children when you die is to put your life insurance pay-out in a trust. The money will remain in the trust, to be looked after by a trustee, until such time as the beneficiary (or beneficiaries) reaches a pre-determined age, usually 18 or 21.
One of the main benefits of doing this is that because the money goes directly into the trust on behalf of the beneficiary, it does not go into your legal estate and so does not count towards the inheritance tax threshold.
Anything above the inheritance tax threshold of £325,000 will be taxed at 40% and so by writing your life insurance policy in trust, you could save your family a lot of money should the worst happen.
Compare family life insurance quotes online
In order to get the best policy with maximal benefits to your family at the lowest cost possible, you should make sure you compare available policies with Money Expert.
Our life insurance comparison service will find you the best quotes on the market that suit your particular requirements at no extra cost to you so you can rest assured that your family get the pay-out they need at the best price possible.