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Including why you should have family life insurance and the difference between term life and level term
It’s sad to read, but around one in twenty-nine children lose a parent while they are little. None of us as parents want to think about leaving our children behind, and while no amount of money will replace you, not having to worry about money can really help to take the burden away from your family members.
Life insurance is one of the cheapest ways that you can protect your family. High commissions from different price comparisons sites can sometimes mean higher premiums, so below how you can get the best cover for you at the cheapest price. Prices may also be affected by your credit rating and other risk factors.
Please note that this is NOT advice. This is just my own experience. Please remember to do your own research as well.
Life assurance need to knows
You won’t be surprised to know that there are loads of different life insurance policies on the market. Some protect just your children, some your mortgage and some try to bring down your inheritance tax fee.
For this blog post, we are talking about family life insurance, so what would happen if you or your partner died. None of us want to think about it but by planning now you can save your family the heartache of also worrying about the finances too.
So what are the different types of life insurance policies? They are:
Mortgage decreasing term insurance
This pays out if someone in your family, like your partner or a child, dies within the set term of your mortgage. As the mortgage decreases so does how much you would be paid as it’s there to cover the cost of your mortgage only.
Check the terms and conditions as some mortgage decreasing term insurance policies do payout with terminal illness as well.
It’s a lot cheaper than level term life assurance but this is normally because they have to pay out less.
This would not give you a lump sum though and if you think you’re partner couldn’t pay the bills without you then it’s worth thinking about level term assurance on top of this.
Whole life insurance
These are investment-linked insurance policies. The idea of these are so that they mitigate any tax bill you have have. They payout on death and aren’t normally over a fixed term.
Life insurance investment or endowments
You might have heard about these. They are mainly now used to pay off your mortgage at the end of the term and less about life insurance protection.
level term life insurance
One term you may have heard a lot is level term life insurance. This is when you insure your family on something that may happen. Now we all know that we’re going to die at some point, but the idea of level term assurance is that it will payout within a set time frame or while you’re still paying the premium.
It’s the easiest form of life insurance as it pretty much says what it does on the tin.
The payout you get doesn’t change. So regardless on when you or your partner die you would get the full amount. If you die after the set term agreed, so let’s say after the 18 years fixed date then you wouldn’t get anything.
It guarantees a lump sum to children if they lose a parent. The more cover you get and the longer you need it will make it cost more.
Keep in mind that the policy only pays out if one of you die and it is a fixed amount. So for example that could be £200,000 within 20 years. The risk is will you die within that time frame and will £200,000 be enough by then.
Will your children be able to stand on their own two feet? Will it cover the mortgage if this is the only life insurance policy you have? Will your partner be able to survive financially on this? All questions to ask yourself before you take the policy out.
After that, it’s just about finding the cheapest policy.
How much should you cover your family for?
Think of it this way, could your family afford to live without you? Most people say that it’s safer to cover for ten times the main earner’s income in till your children are out of full-time education.
That seems a bit woolly though so we suggest:
Using a budget planner like ours here to work out your outgoings. Be honest with yourself to get a clear picture on what the family finances look like and what could happen if your wage wasn’t included.
Remember to add mortgage payments to it if your policy doesn’t cover the mortgage.
Anything the kids are going to need like school uniform, money for trips, clubs etc
Future spendings like university fees or car loans
Funeral costs, can you cover them?
While it may all seem like a lot of money it’s worth remembering that in the future your money is going to be worthless due to inflation. What you think is a lot now will be worth a lot less in let’s say twenty years time.
The bright side is that any of your children will not have to pay income tax on what they are paid out but they may be subject to the 40% inheritance tax. Doing small things like putting large sums into a ready-made trust can solve these issues. Speaking to a financial advisor is well worth it if you think you may have this issue.
How long should my life insurance cover last?
It’s a personal choice but many people say it should last in till your last child is no longer dependant on you. if you plan on having more kids then it’s best to work out how old they would be as extending your cover or getting a new one can work out more expensive down the line.
Think of it this way: the older you are the more expensive the policy gets.
If you’re thinking of covering your partner more so, then it’s in till they plan on retirement but don’t feel like you have to do this. Covering for 20 years should be enough.
Is family income benefit cheaper?
Cheaper is the wrong word and it really does depend on your circumstances.
Family income benefit can give your family a regular income instead of that lump sum. This isn’t taxed and is paid over a set agreed period.
It can work out cheaper at times but the pay-out is a bit riskier.
For example, you could take out a twenty-year policy that pays out twenty grand every year for a set amount of time. This would mean that if you died within the first year your family would get twenty grand every year for the fixed term. If you died in the last year then they only get twenty grand.
For a level term insurance policy the monthly figure may be more but they would be guaranteed the full amount regardless of when you died.
Always seek some guidance on this from a financial advisor. They will help you decide what’s best for your family.
What’s the best age to get life insurance for my family?
Get it while you’re young! It costs a lot less the younger and healthier you are as you are less risk.
For example, I’m 34 years old non-smoker and mine is £8 a month. My husband who is 40 years old non-smoker is £17. That alone should make you get it quickly!
Is critical illness cover a good idea?
We have critical illness cover as ours is quite in-depth and covers the kids too.
Saying that many people aren’t fond of them as the gaps in the policies can be huge! They don’t tend to cover everything, not even all cancers so it’s worth talking to a financial advisor if you want critical illness cover.
Joint life cover
When buying any life insurance policy you can get either a single one or a joint life insurance policy.
It may be a little cheaper to get a joint life insurance policy but it will only pay out once. so if you both die at the same time there is only one payout.
Having two single policies mean that they both payout to your children if you both die. It may be a few extra pounds each month but it could be worth it in the long run!
Life insurance quote
If you need life insurance then getting as many quotes as possible off of as many companies as possible is the way to go.
Your policy will depend on your age, general health, occupation and if you like sky diving on the weekends.
They level the amount of risk you are to death against your payments.
Remember to always declare everything. This stops them from being able to wriggle out of paying out.
If you have pre-existing medical conditions then it’s worth talking to a broker who will be able to point you in the direction of a provider who could help you without it costing the earth.
Fixed life insurance
When you buy cover like level term, you may be given an option to fix your premiums or make them reviewable.
The issues with making them reviewable is that, while they may be cheaper now, your provider can raise them in the coming years.
By having them fixed, you know exactly what you are paying for your whole policy.
Switching life insurance cover
Like everything, you can switch your life assurance policy at any time.
Remember to check that they are like for like and that nothing is missing from your new policy. Have you had any new health concerns since you took the old one out? Has anything else changed? It may not be worth switching so please check first.
What happens if my provider doesn’t payout?
Complain to your provider first and foremost. Write everything down. If you don’t like the answer or aren’t getting anywhere then it’s time to speak to the Financial Conduct Authority who are independent.
Use the cashback sites
It’s always best to check the T&Cs before you purchase through a cashback site but you could end up saving some good money.
Remember our normal tip though, always cash out on a regular basis.
We recommend Quidco*and Swagbucks*. You get money off whenever you shop online through their sites which can really come in handy.
It shouldn’t cost you anything extra, if anything you get money back!
13 ways to get cheap family life insurance
1. Level term insurance pays out if you die within a fixed term
2. Mortgage decreasing term insurance pays off your mortgage only if you die
3. The older you are the more expensive the policy gets
4. Seeking help from a financial advisor can take away any risk
5. Critical illness cover doesn’t cover everything. Sometimes it’s worth having level term and income protection insurance instead
6. Joint life cover rarely pays out twice if you both die
7. Getting single cover each maybe a little more expensive now but could be worth it in the longer term
8. The less risk you are the lower your premium will be
9. Most companies (unless you are looking for an over 50s life insurance plan) will ask you about your health and what you do to assess risk
10. Giving up smoking can bring down your monthly cost. Have it noted by your GP so it’s on file
11. Tell the truth at all times so that your provider has no wiggle room on not paying out
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12. You can switch your life assurance policy at any time if you find a better deal. Remember to check the T&Cs carefully though
13. You can use cashback sites to get some money back. Watch the T&Cs to make sure you’re still getting the deal you want.
If you enjoyed this post and would like some more family friendly money managing ideas, then head over to the managing money section here on Savings 4 Savvy Mums where you’ll find over 30 blog posts dedicated to helping you manage your family’s finance. There’s enough tips to help you save over £300 a month! You could also pop over and follow my managing money Pinterest boards for lots more ideas on how to keep more of your money in your pocket: Managing Money Printables, Managing Money for Families and Family Finance.
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