Life Insurance pays out on death, securing your loved ones a benefit to see them through such difficult times.
Use a policy to protect an outstanding mortgage, leave a cash lump sum or replace your income – whichever would be best for your family.
Include Critical Illness Cover to protect against the risks of illnesses such as heart attack, cancer and stroke.
What Does Family Life Insurance Cover?
- Death
Should you pass away during the life of your policy, it will pay out a tax-free cash lump sum (or an income, depending on the type of insurance) to your beneficiaries.
- Terminal Illness
The vast majority of Life Insurance policies will pay out early if you’re diagnosed as terminally ill (usually defined as having fewer than 12 months to live).
- Critical Illness
If you add Critical Illness Cover and Life Insurance together, you get a policy that will pay out not just on death but also if you’re ever diagnosed as critically ill.
There are a number of different policies you can use to provide your family with security after your death.
Family Income Benefit
Although Family Income Benefit is one of the lesser-known Life Insurance products, it’s nonetheless a powerful planning tool to ensure your family can maintain fiscal stability long after your death.
While other Life Insurance products pay out a lump sum, Family Income Benefit will pay out a regular income for a set period.
Whole of Life Insurance
Whole of Life Insurance is designed to cover you until your death, whenever that may be. It’s therefore designed to insure your family for obligations that won’t be cleared over time, such as funeral expenses or inheritance tax bills.
Do I Need Family Life Insurance?
It’s not something that anyone wants to think about, but while the risk of death is fortunately relatively low for a healthy person in the UK today, it’s still a factor you need to consider when looking to protect your family.
The point of most Life Insurance policies is to protect you for the long run, say over the length of an entire mortgage.
When you examine the likelihood of you passing away over a much longer period, the risk rises.
Given the relatively inexpensive cost of life insurance versus the cost of leaving your family unprotected, it is often a no brainer to have suitable cover in place to provide a financial lifeline should the worst happen.
Youth Is No Protection
Younger people might feel that they have no need for Life Insurance and in the short-term this may be true.
The risk of death for a healthy, 30-year-old man over the next 10 years is 1 in 85. However, when you extend this period to 25 years, which is around the typical length for a mortgage, the risk rises to 1 in 18.
What is Family Income Benefit?
The Life Insurance most people are familiar with pays out a tax-free cash lump sum on the death of the policyholder. However, there’s another type of Life Insurance for families that may be more useful – Family Income Benefit.
Family Income Benefit pays out an annual income to your loved ones for the remainder of the policy term should you die.
It is designed to provide a continuation of the policyholder’s income into the household, potentially protecting your family’s financial future for years or decades. You can also include Critical Illness Cover on the policy, so the insurance will kick in if you’re diagnosed with a serious illness such as heart attack, cancer or stroke.
However, adding Critical Illness Insurance to Family Income Benefit may not always be the best option to protect your income. Income Protection tends to be far better suited for this purpose as it covers you if you’re off work for any medical reason.
Of course there may be instances where adding Critical Illness Cover to FIB makes sense, but it’s a complicated area. That’s where talking to one of our advisers can help. Call 02084327333 or email help@drewberry.co.uk for fee-free advice.
Why Family Income Benefit?
Receiving a one off lump sum to manage ongoing financial commitments can be quite a daunting task.
If costs spiral it could feasibly be eaten up quickly leaving your loved ones with financial worries and a shortfall to make up, everything the life insurance was supposed to prevent.
Providing Income Continuity
Family Income Benefit will provide a continuation of income rather than a lump sum. The end date usually aligns with the age your youngest child can reasonably be expected to be financially independent.
Family income insurance is commonly used where you have a more precise idea of your family’s financial outlay going forward, such as where you need to cover school fees.
It’s also popular if you have older children as beneficiaries, who may use any financial freedom they have to spend a lump sum unwisely.
What is Whole of Life Insurance?
Many people have heard of Whole of Life Insurance without even realising it. Over-50s Life Insurance is a specific form of Whole of Life Cover.
In insurance terms, a Whole of Life policy does exactly what it sounds like it will do – cover you for your whole life, right up until your death. All you need to do is continue paying the monthly premiums until you pass away.
This is compared to Term Insurance, which only covers you for a set period of time and then ends, perhaps long enough to cover a mortgage debt or another outstanding loan.
Whole of Life Insurance is sometimes referred to as Whole of Life Assurance because it protects against an event that’s assured to happen, i.e. your eventual death, rather than an event that may happen during the policy’s term.
Given that you definitely secure a payout from Whole of Life Cover providing you keep paying the premiums, it’s often used to cover items you know will be need such as for inheritance tax purposes or funeral expenses.
Over 50s Life Cover for Funerals
Whole of Life Cover is often used to cover funeral expenses. Given this, a funeral can be our last major expense, one we want to protect our families from having to pay out of their own pockets or having deducted from their inheritance.
Whole of Life Insurance and Inheritance Tax
You can also use Whole of Life Insurance to spare your family from the entire inheritance tax bill on your estate.
To save your family from going through the hassle and expense of covering the bill out of their own pocket or taking out an executors loan to pay the bill to release the estate, a Whole of Life Insurance policy written into trust can be used to cover an entire inheritance tax bill.
IMPORTANT❗️
While we can’t advise on your individual inheritance tax affairs, we can put together the most suitable policy to protect against your specific liabilities. For fee-free advice, call 02084327333.
How Much Does Family Life Insurance Cost?
How much your family life cover will cost depends largely on a couple of key factors: the length of time and the amount you’re looking to insure yourself for as a benefit. Factors that affect the cost of Life Insurance include:
- Your age
The older you are at the start of the policy, and when you want the policy to end, the higher the risk you represent and therefore the higher the cost of cover
- Your state of health
Your health currently has a big impact on the cost of Family Life Insurance, particularly if you’re suffering from serious medical conditions such as diabetes or have a high BMI
- Your medical history
While less serious medical issues you’ve suffered in the past have little bearing on the cost of Life Insurance, more serious illnesses in the past, such as cancer, will increase the cost of cover
- Your smoking status
You can get Life Insurance for smokers, but the premiums will be higher due to the increased risk of death you present to the insurer.
Calculate the Cost of Family Life Insurance
You could go to each insurer individually and get Life Insurance quotes from all of them to find the best cover for you, but this would take a lot of time. You can compare quotes using our online quote tool to gather quotes from leading UK insurers.
Single or Joint Family Life Insurance?
Spouses and civil partners, or those who have combined interests, often look to Joint Life Insurance to protect themselves and their families.
While Joint Life Insurance is typically cheaper than two single policies, there’s a good reason for this. It’s because the policy will only pay out once, usually on the death of the first partner. This is known as joint life first death insurance.
Most Joint Life Insurance is written on a first death basis, which can mean it’s always not particularly suitable for providing comprehensive family protection.
This is because it leaves the surviving partner without Life Insurance on the death of the first partner, meaning nothing can be passed down to children if the first payment is used to cover a mortgage.
The surviving partner may find getting re-insured at a later date far more expensive due to their older age and any health conditions they’ve suffered since taking out the first policy.
The alternative to Joint Life Insurance is two single Life Insurance policies, one for each partner. Although this will work out slightly more expensive you’ll be securing two payouts, making this potentially a better option for protecting your family if both parents pass away.
Should I Add Critical Illness Cover?
A major consideration when it comes to Life Insurance is whether or not you should include Critical Illness Cover, which will enhance your insurance so it pays out if you develop a critical illness.
If you do add this cover, the critical illness must be one of the ones specified by the insurer and of a specific severity.
The most common claims on such policies are for cancer, heart attacks and strokes.
If you do unfortunately become critically ill, the policy pays out the same lump sum as if you’d passed away.
Having additional protection that will cover your mortgage, for instance, if you develop a serious illness or disability and can no longer provide for your family is attractive to many people.
After all, for many people a critical illness could deal the same financial blow to the family as death, especially if the ill person is never able to work again.
When Income Protection Could Be More Suitable…
If you’re worried about an illness or injury stopping you working and paying the mortgage on the family home or meeting other bills and expenses it may make more sense to opt for Income Protection alongside Life Insurance.
This covers you for any illness or injury which stops you from working and will pay out a regular income for as long as you need it, rather than just one lump sum.
Income Protection is often seen as more comprehensive than Critical Illness Cover because it will pay out for anything that prevents you from working, regardless of severity.
Should I Opt for Indexation?
Another option you have is whether or not you want to index-link your Life Insurance so that your payout won’t be eroded by the effects of inflation.
Life Insurance is a long-term product, so it’s inevitable that inflation will take a bite out of your benefit over time.
This is less of a concern with Decreasing Term Insurance, because it is used to protect a known debt such as a repayment mortgage with the benefit designed to fall over time.
However, if you are trying to protect your family’s standard of living until they are of an age where they are self sufficient, inflation could do a lot of damage to the real purchasing power of the benefit over time.
In such cases opting to index your benefit amount means your family would have the same purchasing power whether a claim is made today or 20 years down the road.
Reviewable or Guaranteed Premiums?
With Life Insurance you can choose to either guarantee your premiums so that they stay fixed (unless you’ve indexed them, in which case there’ll be an inflationary increase).
The alternative is reviewable premiums, where the insurer can adjust your premiums each year.
The issue with this is that you never know how much your Family Life Insurance will cost year-on-year, and your premiums could rise significantly over the course of your policy.
Whether or not reviewable premiums are right for you depends on your circumstances, but they can increase the cost of cover significantly over time. Guaranteed premiums may start off more expensive, but they’ll usually work out cheaper over the life of the policy.
Will My Medical History Impact My Life Insurance Application?
When you apply for your Life Insurance you’ll be medically underwritten, which entails you being asked a series of medical questions to assess your current state of health and therefore the level of risk you present to the insurer.
Although this is sufficient for insurers to price cover for the vast majority of applicants, in some instances further medical evidence may be required because of:
- Your age
- The size of the benefit you’re requesting
- Medical conditions/your state of health
- Your BMI
- Smoker status
- Family history of hereditary illnesses
- Any combination of the above.
Get Specialist Advice on Life Insurance for Your Family
Drewberry’s team of specialist advisers arrange cover to protect families every day, so we’ve got a wealth of Life Insurance tips and tricks to pass on to make sure you get the most suitable policy for your needs.
The way we work means we never charge you a fee for that advice – you effectively get all of our experience for free. Our advisers are here to help so call us on 02084327333 or email help@drewberry.co.uk.
Why Speak to Us?
When it comes to protecting yourself and your finances, you deserve first-class service. Here’s why you should talk to us:
- There’s no fee for our service
- We’re an award-winning independent insurance broker, working with the leading UK insurers
- You’ll speak to a dedicated specialist from start to finish
- 4112 and growing independent client reviews rating us at 4.92 / 5
- Claims support when you need it most
- We’re authorised and regulated by the Financial Conduct Authority. Find us on the financial services register.
