Family life insurance isn't a specific type of insurance you can buy. Rather, it's a general term used to describe life insurance or any kind of insurance that provides a lump sum when you die.
Life insurance can only cover those over 18. So, even though you can't get a policy that covers every member of your family, there are still ways you can protect them.
The payout from a life insurance claim could:
| Types of insurance | Pros | Cons | Good for |
|---|---|---|---|
Whole |
Cover for life with a guaranteed pay-out
| Usually a more expensive option |
Ensuring you always leave something behind |
Level |
Same pay-out for the whole cover period
| Typically costs more than decreasing term life insurance |
Covering everything you need to, for a set period |
Decreasing |
Cheapest option |
Pay-out decreases overtime |
Covering a mortgage |
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Those who might need cover include:
While there’s a minimum age you need to be to get a policy, there’s usually no upper age limit. Standard life insurance policies also usually cover you up to any age, although you may get a better deal with a dedicated over-50s policy. Over 50 life insurance policies offer you guaranteed cover up until age 84 and normally cover you beyond that if you answer a few medical questions.
Yes, but there are a few things to consider before you do:
Another way to do this is to put your life insurance in trust. This ensures your payout is looked after by a nominated trustee if your kids are under 18. Or if you think that's too young, you can choose a specific age. It also means your pay out goes exactly to who you want it to.
If you die during the term of your life insurance, the payout forms part of your estate. Your estate is the sum total of everything you leave behind.
If your estate amounts to less than £325,000, your inheritors pay no tax on it. But if your estate, including your payout, is higher than £325,000, they pay 40% tax on anything above that threshold.
You can avoid this by putting life insurance in trust. Doing this separates your payout from your estate so your beneficiaries get the full amount tax free. This is even if your estate is over the £325,000 UK inheritance tax threshold.
You’d be wise to do this if your mortgage is more than £325,000. If your payout is over the threshold, the tax you’d have to pay on it may mean it’s no longer enough to cover your mortgage. Putting your policy into a trust is a smart way to ensure it is.
Trusts also usually allow your beneficiaries to get their payout quicker. With a will, your payout may have to go through probate, which can take a long time. With a trust, it normally doesn’t.
Your beneficiaries can also avoid paying inheritance tax if:
You can find out more about inheritance tax on the GOV.UK website.
Joint life insurance lets you cover 2 lives at once, so it’s particularly well suited to families.
With both you and your partner insured, you’d know that your kids would be looked after financially if either of you died.
There are downsides to a joint policy. It only pays out once, so if both of you died at the same time, your beneficiaries only get a single payout. If you had individual life insurance policies, they'd get 2 payouts. This costs more, however, so whether you want to pay that depends on whether you think your family needs that extra level of support.
"Family life insurance isn't a real product but that doesn't mean you can't protect your family financially if you were to die.
Life or joint life insurance are great options to make sure your family can get financial help after you die. You just need to make sure you find the right policy for you and your family. Think about how much you want to leave behind for them and for how long they'll be dependent on your income."
covers two people on a single policy, paying out if either of you die during the policy term
offers cover for the over 50s, with acceptance guaranteed up to age 84. No medical or health questionnaires required
pays out a lump sum if you're diagnosed with an illness covered by your policy
covers the cost of private medical care, helping you avoid NHS waiting lists to get the cover you need, quickly
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