Children change your life in an incredible way: more cares, more joys and a lot more responsibility.
That responsibility includes taking care of your family under all circumstances, which is why updating or buying a basic life insurance policy should be at the top of your family financial planning list.
What is a life insurance policy?
Life insurance helps give your family financial protection if you were to die. It lets you leave a lump sum of money behind, so it can be used to help replace your income and pay important monthly costs like a mortgage.
You decide how much cover you want. The greater the amount of money you want the policy to pay out, the more money it costs. But a life insurance plan can start from as little as a few pounds a month. It’s hard to consider death as a parent, but it is important to think about the bigger financial picture surrounding your family life.
Do I need to insure both of our lives?
It is a good idea to insure the lives of both parents. People often make the mistake of thinking that they only need to insure the life of a working parent or the person who brings home the most income. Yet the cost of replacing a stay at home parent is significant, and childcare costs and help with domestic jobs is typically high. If you couldn’t afford to lose one person's salary or pay for additional family support, then you should consider if life insurance is appropriate for you.
Life insurance policies are designed to meet the needs of modern families in the most affordable way. You can chose to buy either a joint or a separate life insurance policy. A joint life policy can be cheaper, but it will only pay out once, and won’t provide cover for the second person after the first passes away.
What are the different types of life cover?
There are typically three different types of life cover to consider: level, decreasing and whole of life cover.
Level cover allows you to decide the amount of money to leave behind for your loved ones which is paid out in a lump sum if you die. You get to choose how many years you want your insurance protection to run for, and you typically pay the same monthly premium each month for your insurance until your policy ends. This type of insurance is often chosen to help pay off big costs like the balance of an interest only mortgage, but it can also help to pay for funeral costs and provide money to help your partner and children.
Decreasing cover life insurance is a policy which pays out an agreed sum of money, but the amount paid out on death decreases over time.
This type of policy is often bought to run alongside a large loan or repayment mortgage, so in the event of your death the debt would be paid off. The cover lasts for a specific length of time, and your monthly premiums are fixed, unless you make any changes to your policy. Because the amount paid out on the policy decreases over time, often in line with you paying off a debt like a mortgage, it usually costs less than level cover insurance.A Whole of Life policy pays out a lump sum to your beneficiaries when you die, whenever that is. There is no fixed term to this policy, and you typically pay the premiums up until your death.
Whether you are reviewing your family’s insurance needs or you are preparing for a new baby to arrive, it is difficult to picture worst case scenario situations, like illness and death. But understanding your insurance options and making decisions about what coverage you do and don’t need ensures your family is protected from the outset.
What happens if I become terminally ill, will the policy pay out straight away?
Life insurance is not critical illness cover. They are separate policies and cover you for different things, but you can buy them together. Life insurance guarantees to pay an agreed sum of the death of the policy holder, however, many life insurance companies are sympathetic towards their customers who face the complexity of a terminal diagnosis. Some policies will pay out the lump sum payment early if you're diagnosed with a terminal illness which meets a specific policy definition and if you're not expected to live longer than 12 months.
Once a payment is made, your policy will end and no further claims will be paid. This can be reassuring that your family will be able to survive financially during a very difficult and emotional time.
Please note: If premium payments are not maintained, the benefits of the plan will be put at risk. If premium payments cease altogether, the benefits of the plan will cease. The cover may be less than you need if you do not review it regularly.
