What is family life insurance?
Key takeaways
Family life insurance is any life insurance policy that helps support your loved ones financially after your death
Family life insurance can cover mortgages, debts, daily living costs, and specific responsibilities like school fees
To determin cover amount, consider housing costs, outstanding debts, daily living expenses, and funeral expenses
What is family life insurance?
Family life insurance doesn’t refer to a specific product, but any life insurance policy that can serve as a way to help your loved ones once you’re gone.
The payout from these policies can cover anything from mortgages and debts to daily living costs or specific responsibilities such as school fees.
Essentially, family life insurance is a financial safety net that can alleviate the economic impact of a policyholder's death on their family.
Did you know...
An estimated 46,300 dependent children (aged 0-17) are bereaved of a parent each year. That’s 127 children newly bereaved each day.
How does life insurance work?
Upon the policyholder's death beneficiaries receive a payout, which can be used for various purposes:
Clearing outstanding debt, including car payments and credit card balances
Keeping up with mortgage payments
Providing childcare and ongoing financial support
Establishing an inheritance
Covering funeral expenses
Different types of life insurance policy have different payout structures. The amount beneficiaries receive may remain constant or decrease over time.
Some policies also allow for a payout upon the diagnosis of a terminal illness during the policy term.
What are the different types of life insurance?
There are various types of life insurance policies that can be used to protect your family.
The different types include:
Level-term life insurance pays out a set amount of money if you die while the policy is in place. It is often called family life insurance.
The payout remains constant throughout the policy's duration, as do the premiums. Typically the younger and healthier you are when you take out the policy, the lower your premiums will be.
The predictability of the payout is a significant advantage of this type of policy. The downside is that this insurance can be more expensive than other types, and payouts may not be adjusted for inflation.
Term life insurance is a policy with a set expiration date. It's designed to cover specific periods when financial obligations are at their peak, such as while raising a family or paying off a mortgage.
For example, you could get a term life insurance policy that cover a period of 15 or 20 years while your children are minors, so that if you die within this period the policy will pay out a sum of money that can be used to take care of them in your absence.
Decreasing term life insurance is also known as mortgage life insurance. Its payout decreases over time in line with your mortgage balance.
Premiums are generally cheaper than for level-term policies, but its not suitable for all mortgage types.
Increasing term life insurance accounts for inflation, with the payout increasing annually.
This means higher payouts, but also makes it more expensive than level or decreasing term insurance.
Joint life insurance covers both halves of a couple but only pays out after the first death. It can be more affordable than two separate policies if you and your partner are considered low risk by insurers.
However, you will need to alter the policy if you and your partner split up or get divorced.
Whole of life insurance, also referred to as life assurance, offers lifelong cover and guarantees a payout regardless of when you pass away, as long as you have consistently paid your premiums.
It is almost always more expensive than term policies. There are different types of whole of life insurance, including:
balanced cover, which has fixed premiums
maximum cover, which has variable premiums based on investment performance
Over-50s life insurance policies is geared towards older individuals who are likely to be charged very high premiums if they take out standard life insurance.
It offers a guaranteed payout regardless of when you die (as long as you consistently pay your premiums) and also guaranteed acceptance without medical exams. It is therefore suitable for people with pre-existing health conditions.
There is a risk with these types of policies that the amount it pays out may be less than you paid in.
Level term (family) life insurance
Term life insurance
Decreasing term (mortgage) life insurance
Increasing term life insurance
Joint life insurance
Whole of life
Over 50s life insurance
Who needs family life insurance?
Family life insurance is beneficial for anyone who wishes to provide financial support to their loved ones after they're gone. It's particularly suited to:
Young families and new parents who can secure lower premiums due to their age
Single parents who are the sole financial providers for their children
Homeowners who need to cover mortgage repayments and prevent passing on debt
Should I get a single or joint family life insurance policy?
A joint policy can be a more cost-effective option for couples, but it will only pay out once, even if you both die.
Single life insurance policies offer individual cover so you don't need to worry about changing them in the event of a separation.
How much life insurance cover do I need?
The amount of cover you need should reflect your personal and family circumstances. Consider factors such as:
Housing costs and mortgage repayments
Outstanding debts and loans
Day-to-day living expenses
Childcare and education costs
The average funeral cost in the UK
Our life insurance calculator can help you estimate the cover you need.
What are the alternatives to family life insurance?
Some alternatives that might suit your needs include:
Family income benefit: Offers a steady stream of income instead of a lump sum.
Death in service: An employer benefit that provides a payout if an employee dies while employed.
Income protection insurance: Replaces a portion of your income if you're unable to work due to illness or injury.
Critical illness cover: As a standalone policy or an add-on, critical illness cover pays out upon the diagnosis of a specified serious illness.
How do I find a good life insurance policy?
Finding the right life insurance policy at a competitive rate is easier with MoneySuperMarket. Our platform allows you to compare different levels of cover and premiums to find a policy that fits your budget and meets your family's needs.
