2 valuable types of financial protection to consider if you have a family

18 October 2024

How would your family cope financially if you passed away? It may be a difficult question to consider, but it could also be an important one. Understanding the challenges your family could face may mean you’re able to identify steps to protect them, including taking out financial protection if appropriate.

Financial protection is a type of insurance that would pay out when certain conditions are met to provide a financial safety net when the unexpected happens.

If you’re considering how to provide for your family should the worst happen, there are two key types of financial protection you might want to consider.

1. Life insurance would pay out a lump sum to your family

If you passed away during the term, life insurance would pay out a lump sum to your beneficiary. Your family would be able to use this money however they wish.

When taking out life insurance, you can choose how much you’d like the potential payout to be. The figure, along with other factors, like your health, would affect the premiums you’d need to pay to maintain the cover.

2. Family income benefit could provide your family with a regular income

Family income benefit would also provide your loved ones with financial support if you passed away. However, instead of receiving a lump sum, they’d benefit from a regular income for a defined period.

Again, you can select the income your family would receive if you passed away and you’d need to pay premiums to maintain the cover.

Life insurance v family income benefit: Which is right for your family?

Both life insurance and family income benefit could provide your family with financial security at a time when they’re grieving. It could mean they’re able to maintain their lifestyle or allow your partner to take time away from work to care for your children.

So, which option is right for you? There isn’t a clear answer, and it’ll depend on your family’s needs and priorities.

Life insurance could be an appropriate option if you’d like to provide your family with a way to pay off large financial commitments, such as an outstanding mortgage. You might even choose decreasing term life insurance, where the payout could fall in line with the mortgage repayments you’re making – this could reduce the premiums you’d need to pay.

Receiving a lump sum payout could also be the right option if you want to provide your family with flexibility. They could use the money how they wish, from paying day-to-day costs to investing the money to create a nest egg for your child.

However, life insurance might not be right for you if your partner isn’t comfortable handling large financial sums.

As family income benefit would provide a regular income, it could ensure your family’s ability to meet essential outgoings. Your loved one might also find regular payments more reassuring and easier to manage than a larger one-off lump sum.

There are drawbacks to choosing family income benefit too. As they wouldn’t receive a lump sum, it could provide them with less financial freedom and might limit their options.

You don’t have to choose between life insurance and family income benefit. You might decide they are both appropriate for your family.

For example, you may choose to take out life insurance so your family would have enough to pay off large financial commitments, such as your mortgage. You could then take out family income benefit to cover day-to-day costs until your children reach adulthood. 

While it may be a difficult conversation to have, speaking to your partner about your worries and financial protection options could be valuable.

If you don’t already, involving your partner in your overall financial plan could be useful too. Suddenly being responsible for financial commitments and long-term plans if it isn’t something they’ve been involved in before could be overwhelming.

By including them in financial reviews, they might be better equipped to handle the family’s finances and they may be more comfortable seeking support from your financial planner if they already have an established relationship.

Contact us to discuss how you could create financial security for your family

As well as taking out financial protection that would pay out if you passed away, there might be other steps you could take to improve your family’s financial resilience. Please contact us to discuss creating a financial plan that places those who are most important to you at the centre.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions.

 

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