How does family life insurance work?
There are two different ways of arranging life insurance to protect your loved ones. You can either have a policy that provides a lump sum, known as level term life insurance, or a regular income, known as family income benefit.
Level life insurance is where the amount you are insured for remains the same through the term you select. This could be suitable if you’d like your family to have a lump sum of money for a particular reason. For example, to pay for a house deposit or wedding.
A family income benefit policy pays a monthly income. The income is set by you and the income is paid until the end of the policy term. If you set a policy up with a 20-year term and die after 5 years your family would receive a monthly income for 15 years. If you died after 19 years, they would receive a monthly income for 1 year.
Family income benefit is cheaper than level term life cover because the amount the insurer will have to pay out if you die reduces over time. With level term life cover the amount they will need to pay out remains the same throughout the term of the policy.
What level of cover do I need?
There is no one size fits all with this. If you have a mortgage on your family home, will you have life cover in place to repay it? Even with the mortgage repaid, your family will still need to cover the rest of their usual monthly outgoings like food and electricity. Without your income how much of shortfall is there? If you live with a partner that works, would they need to keep working? If they did, would they have new costs such as childcare?
Should I set up a joint or single life insurance policy?
Family life insurance can be set up jointly or on a single life basis. A joint policy will pay the lump sum amount or monthly benefit if either of the people insured die. The consideration with a joint policy is that different amounts may be needed depending on who dies. Also, if you both die, will your children’s guardian have as much money as you’d like to take care of them? With single life policies, each parent or guardian would have their own cover.
How much does life insurance cost?
There isn’t a set figure that you pay for life insurance as there are many factors that influence the cost, including the length of the policy, your age, and your current health and medical history.
We’d be happy to go through all of this with you to obtain a no obligation quote and give you a good understanding of what the premium might be.
What extras can I add to my policy?
Over time, the value of the pound has gone down because of price inflation. The same items cost more as time goes by. With a long-term policy, like family income benefit, this could be a big problem. £1,000 a month might be what your family needs now, but will it be enough in 10 years’ time?
The way to get over the problem of price inflation is to include inflation protection in the policy. This can be included in both a level term policy and a family life insurance policy. Each year your monthly premium will increase to pay for this protection.
Terminal illness benefit
This is usually included with most life insurance plans. It’s designed to pay out the benefit of a life insurance plan if a doctor or medical officer confirms in writing that you have a limited time left, which is usually less than 12 months.
If you have a family income benefit policy, it will start paying the monthly income. It’s important it’s included on a life insurance plan as no one wants to spend their last 12 months worrying about finances.
Waiver of premium benefit
This is an add-on insurance to provide cover for your monthly premiums. If you’re off sick and unable to work for a period this insurance will maintain your monthly premiums, so you don’t have to cancel your insurance plan. Typically, you need to wait 6 months before it pays out, but you can pay a little extra with some insurers to lower the wait.
Guaranteed insurability option
A guaranteed insurability option, also known as a life change policy, lets you increase the cover on your life insurance policy without further medical underwriting. This is only allowed in certain circumstances, such as marriage, or the birth of a child and there are limits as to how much extra life cover you can have.
Some providers also offer helplines for mental health, medical queries, legal advice etc. For example, you could have a nurse on hand to discuss medical concerns, or access to mental health support.
Fracture cover is offered by a few insurance companies and can be bolted onto a critical illness policy at a cost. With this cover, you could receive a lump sum of up to £6,000 (depending on where the fracture is) which can help tide you over while you recover.
Should I put my life insurance into trust?
It is often a good idea to put life cover into trust. A trust is a legal arrangement where you give ownership of the life cover policy to the trust. The trustees run the trust and in the event of your death pay the life cover to your chosen beneficiaries.
As well as there being potential tax advantages, the use of a trust can ensure that the life cover goes to the right people. The proceeds can also be paid out without the need to wait for probate.
There are different types of trusts, and we can advise you on the most appropriate trust for your circumstances. This might sound complicated, but many insurance providers offer trusts that are often suitable and quick and easy to set up.
Which insurers do you recommend for life insurance?
We have a wide range of providers who we recommend, including: Aegon, AIG Life, Aviva, Legal & General, Liverpool Victoria, Royal London, Scottish Widows, The Exeter, Vitality and Zurich.
Do I have to pay Dupree & Co for this advice?
No, not a penny. We get paid a commission from the insurance company for arranging the policy on your behalf. If you decide to cancel the policy at any time, we do not clawback any of this payment from you. Be careful as some insurance companies can do this!