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How to buy cheaper life insurance that'll protect the financial future of your family. Family life insurance.

There's nothing more precious than your family.

Looking after the ones you love is an integral part of everyday life, so why is it that a quarter of main income earners in a family don’t have life insurance?

If you died unexpectedly, life insurance could help you to look after your family financially, so they can continue with their current lifestyle and perhaps even pay off some debt or the mortgage.

What's family life insurance?

Family life insurance is a low-cost way of providing security.

Depending on the policy type, your family will receive a lump sum, or a regular income if you pass away.

How to find the right policy for your family

As a starter for ten, work out how much money your family will need to protect their lifestyle - include living expenses, mortgages, and debts.

Keep this figure in mind when looking at how much cover a policy offers.

There are a number of different policies available depending on what you need.

Term life insurance pays out a lump sum if you die during a specific time period or ’term’, for example 10 or 25 years.

It’s worth noting that as the pay-out is a fixed sum, it may not have the same value at the end of the term, depending on inflation rates.

Again, this policy is for a specific term.

People usually use it to pay off their mortgage, so each year the amount the pay-out decreases in the same way your mortgage does as you pay it off.

Instead of a lump sum payment, this policy ensures your family has a regular monthly income after your death to cover living expenses.

Level term insurance quote

This kind of policy provides cover for the rest of your life rather than just for a specific term. It’s usually more expensive than term cover, because your insurer is going to have to make a pay-out to your family at some point.

Basic life insurance policies will cover you if you die of natural causes, but what if you’re in a car accident, or fall off a boat and drown?

Accidental death cover will pay out a lump sum if you die as a result of an accident.

It doesn’t cover all eventualities, for example you’ll need specialist cover if you’ve got a dangerous hobby, and it definitely won’t cover you if you die while trying to rob a bank or carrying out any other criminal activity, it does give your family more protection.

Imagine getting a life-threatening sickness that stops you working for a prolonged period.

If that wasn’t stressful enough, throw in having to use all your savings to pay the bills if you’re off work as well.

It’s definitely worth considering adding critical illness cover to your policy to protect your family should you fall ill.

It will pay a lump sum which could help pay off your mortgage, or support your family financially during your recovery.

As the name suggests, the illness has to be pretty serious, for example cancer or a heart attack.

You’ll need to check the policy terms and conditions to see which illnesses are covered.

With joint life, you can get cover for two people under one policy.

A joint policy only pays out once though, so you need to decide up front whether you want it to pay out on the first or second death.

It’s more cost effective to get a joint policy, rather than paying for two individual ones, but you’ll need to consider whether the same levels and type of cover would be suitable for you both.

Life insurance products

If you have different requirements, separate policies may be more suitable.

Things to look out for when choosing a policy

Insurance companies don’t pay out in every circumstance, so you need to read the policy terms and conditions carefully to make sure the cover offered is what you need.

If you take risks with your health, like smoking or participate in extreme sports, some insurers won’t cover you, or they make charge more for your policy.

The same goes for risky jobs and serious health problems, although there are specialist insurers who will cover you if a standard policy doesn’t.

Whatever you do, don’t withhold information from your insurance company.

Your policy may be cancelled or invalidated if you don’t answer the questions an insurer asks during the application process honestly.

Other exclusions

Most policies won’t pay out in the following circumstances:

Death caused by misuse of drugs or alcohol

Suicide within a certain period of purchasing the policy

Death caused by a reckless or negligent activity

Death due to war or terrorist activity

Critical illness benefit for children

No one likes to think of their child suffering a serious illness.

If it does happen, having life insurance with critical illness cover in place can help you to focus on taking care of your child and helping them recover, without worrying about your finances.

30 year level term

“Most critical illness policies now also include benefits that pay out in the event of a children’s illness," Peter Hamilton, Head of Strategic Partnerships, Zurich explains.

"The cover is normally automatically incorporated at no extra cost, and provides a real benefit to parents at a time of huge stress.

“The sum assured is typically limited, but the money can make a material difference to someone's ability to meet additional expenses that might include private treatment, travel, accommodation or time off work, all at a very traumatic time.”

Your child won’t have to have any medical tests to be included in a policy, and some insurers include children’s critical illness cover as standard.

Check the policy wording to see what’s included.

Will my family pay tax on the money they receive?

Your family won’t usually be liable for income or capital gains tax on the money, but they might have to pay inheritance tax, unless your policy is written ‘in trust’.

Simply put, you give your money to a third party (the trustee) to look after for you for the benefit of your family (the beneficiaries).

The money ‘belongs’ to the trust rather than you, and falls outside your estate for inheritance tax purposes.

Most insurers already have trusts set up for this purpose, so check with them and make sure your policy is set up this way.

Interested in getting a life insurance policy to help protect your family?

You can compare quotes and choose the one that’s right for you and your family using GoCompare.

by Kath Denton