There’s a lot going on when you have kids, which I know isn’t news to any parent out there. With a young family, it’s hard to sit down and have a cup of tea in peace, let alone find the time to do life admin. I’m here to tell you though that it is pretty important to steal a little bit of time to think about life insurance if you haven’t already.
Life insurance is important at many stages in your life but there’s no time more important than when you have a family to provide for. If you’re not around anymore, that’s going to hugely impact your partner and children and that’s why you should be thinking about safeguarding their future.
What is life insurance?
You’ve probably heard the words ‘life insurance’ mentioned before but you may not know exactly what it is. Life insurance is basically insurance that you take out to cover your beneficiaries when you pass away. It’s designed to fill the financial void that would be left when you’re no longer there to cover mortgage repayments, bills, debts and to cover the cost of a funeral and such alike.
There are actually a few different types of products when it comes to life insurance.
Traditional life insurance is the most common and talked about product. This is the one I mentioned above that pays out a lump sum to your family when you pass away. You’re basically paying monthly into a policy that will give your family some sort of reality when you’re no longer around.
The last thing they’ll want to deal with if you pass away is paying off any debts, keeping on top of the mortgage and bills and trying to keep food on the table. A life insurance payout ensures that this is no longer a worry for them.
Family income benefit
Another really popular product for families is family income benefit.
It’s really similar to life insurance. In fact, the only real difference is that instead of paying out a lump sum upon death, it provides a family with a regular income.
You decide how long you want your policy to last – so perhaps until your family are financially dependent and you don’t need to worry so much about what would happen to them if you passed away – and the amount of money your family would need per month in order to be financially secure.
Here’s how it works.
Let’s say for example that your family would need £2,000 per month for the next 20 years to maintain a comfortable life without you.
If you passed away within the first year of the policy, the insurer would pay out that sum for the full 20 years.
If you passed away 15 years into the policy, they’d receive £2,000 a month for the final five years.
After 20 years when the policy ends, you can’t claim and there won’t be a payout. You’re essentially paying for that peace of mind and protection.
Mortgage protection insurance
If you own a home, the biggest worry you’ve probably got when it comes to finances is how your family will continue to pay the mortgage without your income.
A mortgage is likely to be your biggest financial commitment and probably always will be. If your family can’t make the repayments then they could face being uprooted from the family home in a difficult time.
Enter, mortgage protection insurance.
Mortgage protection insurance pays out a lump sum like life insurance, but it’s specifically designed to pay off your mortgage.
When taking out this product, you need to decide whether you want to take out level term cover or decreasing term cover.
Level term cover means that your payout will always be a fixed amount, no matter at what point in the policy you claim.
If you opt for a £180,000 payout to cover your mortgage then this is what you’ll get when you claim.
With decreasing term cover, the amount decreases with time, just as the amount left on your mortgage does.
If a claim was to be made 10 years into a 20-year policy, the payout would be half of what it would have been at the beginning of the policy. Simple!
If you’re thinking about how best to protect your family, then these are probably the insurance products that you’re going to want to look into in detail. You don’t need them all, but you’d be wise to have one of them under your belt.