Family life insurance – Who should get it?

11 min Read Published: 12 Sep 2023

Family life insuranceProtecting our families is usually the main motivation for buying life insurance, especially during the years they are most dependent on us financially. There are a few different ways to arrange your family life insurance and ways to ensure that the right people can access the money quickly and easily.

Although family life insurance might suggest that your whole family is insured, its main purpose is to insure those whose death would cause financial hardship. We will, however, look at some very important illness insurances for children that can also provide a death benefit.

What is family life insurance?

Family life insurance covers your life and provides your dependents with financial security should you die. It is one of the worst things we can imagine and not something most people want to think about but unfortunately, it happens and for families who have no life cover, it can cause significant financial hardship. 

For most families, paying off debts including your mortgage and providing an ongoing income to live on are the main concerns. We would all want to ensure that our families can maintain a roof over their heads and continue their normal way of life.

Family life can be significantly impacted if you are no longer there to support it and a life insurance payout can ease the financial pain.

"More than 100 children and young people are bereaved of a parent every day in the UK"


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Who needs family life insurance?

If your death will cause financial hardship for the people in your life, you probably need family life insurance.

Family life insurance for main earners

If you earn an income that helps to support your family it can be easy to work out how your death will cause financial complications. It is helpful to think about what you fund with your income and consider how it would be funded without you. This will begin to help you build the life insurance solution that you need. 

Family life insurance for secondary earners/homemakers

If you are a homemaker or someone who provides the secondary income to your household, you will need to think about what your income funds and how your other functions will be replaced. For example, childcare might need to be paid for or your partner may have to reduce hours of work to facilitate this - either way there is an associated cost. Some people will look to extended family members for support but do consider how long this can be sustained and the added pressures you might put on the people in your life in the long term. 

Family life insurance for blended/extended families

Some people will be part of a blended family and have children from previous relationships for whom they provide maintenance payments and/or care. Others may be carers for children as well as elderly family members. In these instances, your death may impact more than one household. There are ways to arrange family insurance so that each household receives what they need if that is what you want. 

It may feel difficult but the most useful thing to do is to imagine your life without you in it. This will help you assess what adjustments can realistically be made and where your family will need money to prevent hardship and that’s where life insurance comes in.

How does family life insurance work?

If you die, your family life insurance will pay a tax-free sum of money to your nominated beneficiaries either as a one-off lump sum or as an income for your chosen number of years. It is designed to ensure that your family can meet their financial responsibilities and avoid hardship.

Will your family life insurance need to pay a regular income, a lump sum of money or a bit of both?

Lump sums are useful to pay off debts, mortgages, funeral expenses and can also provide security for the future. On the other hand, a regular tax-free income can be a more manageable way to cover the everyday costs of living. Most families need a bit of both and you can arrange your family life insurance in this way.

How long will you need to protect your family?

You may wish to protect your family whilst your children are still dependent on you financially or for as long as you are working so that your income can be replaced. The number of years of your mortgage and other debts can also help to determine how long to protect your family.

There are family life insurance policies that can insure you until you die, whenever that happens but these are more expensive and less commonly needed for family life insurance. If you are interested in this type of insurance then you should read our article "Whole of life insurance - what you need to know"

How much money will your family life insurance need to pay out?

This is dependent on your own circumstances and you'll also want to balance the amount of money your life insurance will pay your family with what it will cost in monthly premiums. You can start to work out how much money your family will need using the following list:

  • Monthly household expenditure
  • Cost of replacing childcare or other functions
  • Outstanding balance of debts
  • Funeral costs

As morbid as it may seem, don't forget to deduct your own cost of living. For example, if you run a second car, pay for travel, gym memberships and so on, these living costs will stop. You may wish to read our article "How much life insurance do I need?" or alternatively, it may be useful to speak with a specialist life insurance adviser* so that you don't over or under-insure yourself.

Types of family life insurance

It is important not to let the different types of life insurance confuse you - the names aren't always helpful. Once you understand how each type of cover works, you might even find that your personal circumstances match more than one. Life insurance plans can include more than one type of cover to allow for this. 

Below is a summary of the main types of family life insurance and how they work. You can click on the titles to read about each type in more detail.

Family life insurance - How it works

Type of family life insurance How it works
Level term life insurance
  • Pays out a lump sum of money if you die
  • Pays out if you die within the term of the policy
  • Can be index-linked so the payout value increases with inflation over the term

Good for paying off debts, mortgage, funeral expenses or providing financial security

Decreasing term life insurance
  • Pays out a lump sum of money if you die
  • Pays out if you die within the term of the policy
  • The value of the insurance decreases over time

Good for paying off a repayment mortgage only and will protect your family home

Family income benefit
  • Pays out an income if you die
  • Pays out if you die within the term of the policy
  • The income will start paying when you die and will continue until the policy end date
  • The longer you live, the less the policy will need to pay as your responsibilities reduce
  • Cost-effective solution to arrange a large sum of cover initially which is what most families need

Good for providing a regular income to pay for the household expenditure

Whole of life insurance
  • Pays out a lump sum when you die
  • There is no term as the policy continues to insure you for as long as you live

Good for funeral expenses; to leave a legacy or to fund an inheritance tax bill

Families usually prefer to buy term life insurance or family income benefit because it is cost-effective and well suited to their needs. The logic is that the financial impact of your death lessens as your children grow up and become independent and even more once you retire and your family becomes less dependent on your earned income.

Most families need a larger amount of life insurance if death were to happen prematurely rather than later in life.

To work out the best family life insurance solution for your family at an affordable monthly price it is a good idea to speak with a specialist life insurance adviser*

How much does family life insurance cost?

Most people pay for their family life insurance monthly. Premiums are paid for in advance each month and if you stop paying, the insurance will lapse. The cost of the insurance usually stays the same for the term and doesn't renew each year, so the amount you pay at the start of the policy is usually what you continue to pay until the policy ends. Buying life insurance when you are young and healthy puts you at an advantage as your premiums will be lower.

Factors that impact the cost of family life insurance

  • The level of cover
  • How long you are insured for
  • Your age
  • Your health
  • Smoker status
  • Lifestyle

Cost of £250,000 level term life insurance over 25 years

Age Non-Smoker Monthly Premium^ Smoker Monthly Premium^
25 £6.42 £9.78
35 £11.05 £23.52
45 £25.32 £65.02

^All costs are based on a person in good health with no adverse lifestyle risks

Cost of £25,000 family income benefit over 25 years

Age Non-Smoker Monthly Premium^ Smoker Monthly Premium^
25 £8.74 £16.31
35 £15.98 £31.06
45 £36.95 £85.10

^All costs are based on a person in good health with no adverse lifestyle risks

Can I arrange family life insurance with my partner?

Yes, it's useful to arrange your life insurance together if you are in a relationship so that you can agree on a policy that suits your personal circumstances. However, it is usually wiser to buy single life policies. Insuring yourselves individually works so that both policies pay out a lump sum in the event that you both die. A joint life insurance policy will only pay out once and will also leave the surviving person without life insurance.

Two single life insurance policies cost a similar amount to a joint life policy but can double the potential payout.

Life insurance for blended families

Blended families can include children from a previous relationship; your partner's children who you care for as well as your own children. Children within your blended family may or may not live with you or you may have shared caring duties for them.

The main things to consider are:

  1. who you want to benefit
  2. who you want to entrust to distribute the benefits

Who you want to benefit may be quite simple to work out but often, who you entrust to distribute the benefits can be more complex. People do worry about the disagreements that may occur between different members of the family.

To give you peace of mind, you can appoint more than one trustee so that they are forced to agree on how to benefit any children. Trustees have a legal obligation to carry out your wishes and it is an important responsibility and so sharing it between people can help to distribute it. If you don't wish to share duties between people then you can arrange separate life insurance policies and appoint a different trustee for each - this can sometimes keep things simpler. Check out our article "Writing your life insurance in trust – How it works and why you should consider it"

Can I include my children on a family life insurance policy?

Yes, you can arrange some types of insurance for your children. Critical illness insurance for your children is usually included with your critical illness insurance. In fact, children's critical illness claims are usually in the top 5 claims reasons against an adult critical illness insurance policy.

Critical illness insurance is designed to pay out if you are diagnosed with one of a number of very serious medical conditions. The policy details a list of around 70 illnesses or more. The children's critical illness cover will stretch this list to include conditions that specifically affect children. Of course, children are usually covered for all the adult conditions too.

Most critical illness insurance companies include children's cover within their policies but each company's list of illnesses does vary. Some are more comprehensive than others and there is merit in shopping around for those that will give you a better chance of making a claim.

Children's critical illness insurance sometimes provides a death benefit for children too which can help with the financial burden of funeral costs or anything else that the family might need. These are usually around £10,000 but the amount does vary between insurance companies.

Guardian 1821 - a life and critical illness insurance provider - gives its customers the unique option to arrange critical illness insurance for their children - even if they are only buying life insurance for themselves. It is often inexpensive to add and could add a great deal of value in the unfortunate circumstance that you had to claim.

It is a bit tricky trying to compare the best policies so it can be helpful to speak with a specialist life insurance adviser* who can help you to build your life and illness insurance to suit your family's needs and budget.

If you would like to read a more in-depth article to understand children's benefits, you'll find this in our article, "Can I get life insurance for my child?"

Does family life insurance include critical illness insurance?

Critical illness insurance can be added to a family life insurance policy so that you can claim if you are diagnosed with a critical illness. It will increase the cost of your life insurance but you're statistically more likely to make a claim for critical illness than for death.

Each life insurance company defines the critical illnesses that they cover in a list within their policy conditions. Illnesses such as cancers, heart attacks and strokes are amongst the lists of critical illnesses that are covered. Critical illness insurance pays out a lump sum or an income if you are diagnosed with one of the illnesses covered by your policy and you meet its definition.

This option can provide much needed financial protection while you focus on treatment and recovery. Read our article "Critical illness insurance - what is it and is it worth having?" to understand it better.

How to buy family life insurance at the best rates

Having considered what family life insurance is, what types will suit your family best, it is time to start building your solution. You can start by looking at comparison websites for life insurance quotes but the prices will be a very basic indication of cost which might drastically change after you apply.

Some life insurance companies might be the cheapest on the comparison site but are not the best for your particular circumstances. Life insurance companies have different criteria for how much to charge people who perhaps have some health conditions to discuss, do a manual job or pursue certain activities. Unfortunately, you only find out the real cost of your insurance after going through a lengthy application process.

The best way to find the cheapest rates for your family life insurance is to speak with a specialist life insurance adviser*. They have access to the whole market and will take all your information up front. Using this, they can source the best solutions at the best rates so that you can budget for your life insurance accurately.

A specialist life insurance adviser* will also help you to arrange your trust which will legally help the money to reach the right people, quickly and without any tax implications. They do this free of charge which saves you the cost of asking a solicitor to arrange this for you. Additionally, you'll qualify for up to £100 cashback if you take out a policy with no obligation to take things further.

If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article - LifeSearch