What is family life insurance?
Family life insurance is an insurance policy you can take out to help make sure your family would receive financial support if you passed away during the policy.
Your insurer would pay a lump sum to your family, which they could then use to clear a mortgage, a debt, or cover day-to-day expenses or specific obligations, such as school fees.
How does family life insurance work?
With a family life insurance policy, you’ll make monthly payments to an insurer to help protect your family in case anything were to happen to you during the policy duration or ‘term’.
If you did pass away during the policy term then the insurer would pay the cover amount you took out – the ‘sum insured’ – to your beneficiary.
This term is usually fixed and will either be a ‘level term’ policy or a ‘decreasing term’ policy.
- Level term life insurance: the sum insured would be the same amount no matter when you passed away during the policy
- Decreasing term life insurance: the amount an insurer would pay out decreases over the policy term to reflect how much you would have paid off your long-term financial commitments if you passed away further into the policy period. This could be a mortgage
It is also possible to take out a whole of life insurance policy. This is when the provider offers you cover for your whole life, and pays the sum insured when you pass away. Whole of life insurance is often more expensive than level term and decreasing because it’s guaranteed that a claim will be made.
Life insurance can either be taken out separately as a single life insurance policy or as a joint life insurance policy.
Single life insurance
A single life insurance policy is suitable for both single parents and partners, because the policy payout can help to cover your personal financial contributions to your family.
This could cover your part of the mortgage, any childcare costs and other day-to-day expenses that you both pay towards the family.
Your single life insurance policy payout could then go to your partner to help keep up with your future family costs.
You can also name a different beneficiary for your policy payout by writing your policy in trust. Your beneficiary might be a partner, but they can also be a child or another family member.
Writing a life insurance policy in trust also means the payout won’t risk having an inheritance tax charge added to it.
Joint life insurance
With joint life insurance, you’re both covered by the same policy. The cost of joint life insurance can then work out to be cheaper than two separate single policies.
A joint life insurance policy could help to cover both of your financial contributions to the family. This includes any future childcare costs you may have to pay if one of you is currently a stay at home parent and you would have to go back to work if the other partner passed away.
A joint life insurance policy will only pay out once, which means your sum insured will usually need to be enough to cover at least the total outstanding mortgage amount.
You’ll then need to add any additional cover for bills, expenses and any extra money you’d want your family to have to the sum insured to help make sure the financial support they’d receive would then be enough.
If one of you passes away during the joint life insurance policy term then the sum insured will be paid to the other partner, which can help to make the claim process quicker and easier. The surviving partner can then use this money to help pay for any family commitments.
This does mean that the surviving partner would then need to take out a single life insurance policy if they wanted further insurance, and their monthly payments will often be higher at this point as they’ll be older.
If both of you pass away at the same time then the money will usually be added to your estate (unless you’ve written the policy in trust). This would then become a part of the sum that the beneficiaries in your will would receive.
How much does life insurance cost?
The average monthly cost of joint life insurance versus single life insurance by age group is:
Monthly cost of joint life insurance only
Monthly cost of single life insurance only
The average costs above were based on MoneySuperMarket customers looking for level term single and joint life insurance cover only (without critical illness cover), with a total cover amount between £150,000 and £200,000 for 10 – 20 years, from January to December 2018.
The cost of life insurance will depend on your individual health, lifestyle and cover needs.
You will need to keep up with your monthly life insurance payments to help make sure you’re protected.
How much life insurance cover do you need?
The life insurance cover amount you take out should be enough to cover the money you have left to pay on your mortgage.
You can then decide to add extra financial cover that would help your partner or another beneficiary in case you were to pass away during the policy term. You could include cover for:
- Any household bills and day-to-day expenses
- Any current or future schooling fees
- Any money you’ve borrowed that you still need to pay back
- Any extra money that would help your family if one of you couldn’t be there
The most popular amount of cover to take out for both single and joint life insurance policies is £100,000 - £200,000, according to MoneySuperMarket data.
The average amount of cover consumers look to take out across all term lengths, according to MoneySuperMarket data from January – September 2018. This amount also includes critical illness cover where it has been added to a policy.
Life insurance with critical illness cover for parents
You might decide to add critical illness cover to your life insurance policy as an added feature or take out life insurance and critical illness cover as a combined policy. Critical illness cover can help to pay for your mortgage and other outgoings if you’re diagnosed with a critical illness or you need to have an operation for a critical illness, and you need time off to recover.
Adding critical illness protection to your life insurance policy means you’ll have more cover – so your monthly life insurance payments will be more expensive.
How much does life insurance with critical illness cost?
The average monthly cost of joint life insurance versus single life insurance with critical illness cover by age group is:
Monthly cost of joint life insurance with critical illness cover
Monthly cost of single life insurance with critical illness cover
The average costs above were based on MoneySuperMarket customers looking for level term single and joint life insurance with critical illness cover included as an additional or a combined policy, with a total cover amount between £150,000 and £200,000 for 10 – 20 years, from January to December 2018.
Critical illness cover for children
If your child falls ill with a critical illness during your critical illness cover term, as the life insurance policy holder you can also claim a percentage of the critical illness cover amount for them.
This could be used to help cover the cost of running a home if you have to take time off work to care for your child while they recover.
There will usually be a limit to how much you can claim, the child’s age and the critical illness that’s covered, so you’ll need to read the policy documents to see how much this would be.
If you make a critical illness claim for your child then you’ll still be able to make a claim for the adult on the policy too. But if you have a joint life insurance policy with critical illness cover then you’ll only be able to claim for one adult.
Some providers will then let you add life insurance cover for a child as an add-on to your life insurance policy at an additional cost. If you are able to add a child to your life insurance policy then this will be limited to a certain age – once your child has reached this point they will then need to take out a policy in their own name.
Can you buy life insurance for another family member?
You can also decide to take out a whole of life insurance policy for your child. This can help to secure a lower monthly cost of life insurance for their whole life.
You may take out life insurance for your elderly parents to help pay for any costs you might need help covering if they were to pass away, like debts, inheritance tax or funeral costs.
You will need their agreement before taking out a life insurance policy for them.
When should you update your family life insurance policy?
Some policies will let you increase your level of cover if your family is increasing in size. You will have to pay a higher monthly premium to have a higher amount of cover. But this will help to make sure your family would have enough to cover their growing needs.
If you move to a bigger house because your family is outgrowing your current place and you then have a bigger mortgage then you will also need more cover to help make sure the repayments would be met if you were no longer around.
Alternatives to family life insurance
An alternative to family life insurance is family income benefit insurance. Here, instead of a lump sum pay-out, the insurer commits to paying a set monthly income from the time of the claim to the end of the agreed policy term.
A regular income can be easier to manage as it can simply replace a lost salary.
Premiums can also be cheaper than with life insurance because an insurer will have to pay out less if a claim is made later on in the policy.
Comparing family life insurance quotes
Comparing family life insurance quotes can help you find the right policy for you and your family. You can use MoneySuperMarket’s life insurance comparison tool to compare both single and joint life insurance quotes.
Answer a few questions about you, your health and lifestyle and the amount of cover you need. You’ll need to make sure your responses are accurate and honest to make sure your dependants would receive a payout if you passed away.
You’ll also be able to add a second applicant to your policy to make it a joint life insurance policy. You can then choose whether you want to take out level term or decreasing term cover.
You’ll then both be able to add more detail about your health and lifestyle, which means you can compare personalised joint life insurance quotes by price per month and features.
Some prices will be guaranteed and fully underwritten which means you can buy immediately. With some you’ll need to confirm certain details with the insurer.
You can change the cover amount, cover length and cover type to see how this affects the monthly price you pay.
If you want to add critical illness cover to see how this affects the cost of life insurance then you can do this by selecting ‘Add critical illness cover’.
You’ll also need to let an insurer know directly if you want to add a child to your policy.