Life insurance for families

Starting a family can be a catalyst for beginning to plan for some of life’s ‘what ifs’. If you’re considering life insurance to help protect your family financially if the worst happens, read on for an overview of how it works and what some of your options are.

What is family life insurance?

Family life insurance is a type of life insurance policy taken out for the purpose of covering your family financially if you pass away or becoming seriously ill or injured. While there are not many bespoke policies available in Australia designed solely for families, some insurance providers offer features and optional add ons that may be of particular interest to families.

For example, some policies may enable you to add dependent children to your life insurance policy, meaning the provider would pay a benefit to the policyholder if the child were to die or be diagnosed with a terminal illness. This is known as children’s life insurance, and may involve a more expensive premium compared to a policy that covers the life an adult only.

Types of life insurance for families

There are a number of different kinds of life insurance policies that may be of interest to families. In many instances, these kinds of policies are designed to cover the life or income of an adult or adults; that is, the parent or parents, as opposed to the whole family directly. In some cases, it may make sense for a couple with children to take out a single policy covering them both – what’s known as joint life insurance or sometimes as ‘multi life’ insurance – or they may choose to be insured separately

Either way, the aim is generally to ensure that if something were to happen to either or both parents, the policy benefit could be used to financially support the whole family.

Some kinds of cover, such as death cover, total and permanent disability (TPD) insurance and income protection are generally available inside and outside of your superannuation.

Death cover

Often just referred to as life insurance or term life insurance, this kind of policy pays a benefit to the beneficiary (e.g. a spouse) if the policyholder dies or is diagnosed with a terminal illness.

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Children’s insurance

Sometimes offered as an optional add on or ‘rider’ to an adult’s life insurance policy, this is designed to provide a benefit to the parent or guardian if the child covered passes away or suffers a serious illness (e.g. meningitis or cancer) or has an accident resulting in serious injury (e.g. a major brain injury or burns to the skin).

Total and permanent disability (TPD) insurance

This kind of policy covers the policyholder if they are seriously injured or become ill and as a result are permanently disabled and can no longer work.

Trauma insurance

If you are covered by trauma insurance, the provider will pay a benefit to you or your beneficiaries if you suffer a serious illness or accident, regardless of whether you are able to work afterwards.

Income protection insurance

Income protection is designed to replace part of your income for a period of time if you are injured or become ill and can no longer work

What expenses does family life insurance cover?

A payout from a life insurance policy can generally be used to cover a broad range of upfront and ongoing costs that could help support a family following an insured event, such as the death of an adult with dependent children, or an accident or illness that means the policyholder can no longer work, if the policy includes income protection cover. Here are some examples of what the benefit could be used to pay for:

• ongoing bills and expenses, such as mortgage repayments on the family home
• schooling costs and childcare
• medical expenses
• adjustments to the home if the policyholder becomes disabled
• other costs, such as groceries and family holidays

When should you take out family life insurance?

Starting a family can be a key time to consider taking out life insurance or reviewing your existing policy to ensure it is still suitable. It may be a good idea to plan ahead and consider your options once you know you are expecting a child, as chances are you will have your hands full as soon as they arrive. You may also wish to review your cover if you have more children down the track and indeed if your circumstances change for another reason – for example, if you buy a home.

That said, it’s important to consider your own circumstances when deciding when and how to review your life insurance needs. It may be worth speaking to a financial adviser for guidance on how best to proceed.

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What are the benefits of family life insurance?

Some of the potential benefits of having life insurance in place to protect your family can include:

• Peace of mind: even if you never need to make a claim, having a policy in place may in itself give you reassurance and a sense of security.
• Financial protection: fundamentally, life insurance is designed to help your family meet its expenses if you pass away or are unable to earn an income due to an illness or injury.
• Flexibility: there are a range of different policy types to choose from when assessing life insurance options, as well as optional features you can consider adding to your policy. In many situations, particularly if your policy is outside super, you will have the ability to have the policy tailored to your situation.

What are the drawbacks of family life insurance?

Some of the potential drawbacks of having life insurance in place to protect your family can include:

• Premiums can be expensive: new parents face a lot of costs and adding life insurance premiums could mean having to make sacrifices in other areas.
• Exclusions and limits: it’s important to watch out for risks that are not covered under the policies you are considering and limits that apply to certain kinds of claims.

How much do family life insurance premiums cost?

Life insurance premiums can vary significantly based on a range of factors, such as your age, occupation and the value of the policy (i.e., how much the benefit paid to your family would be). If you have a policy that covers multiple people, such as a couple’s life insurance policy, or a policy that includes add ons relevant to your family, it’s likely to cost more than a policy just for you. However, some insurance providers offer what are called multi-life discounts if the policy covers more than one person, so it could cost less than two separate policies.

Comparing a range of policies may also assist with keeping the cost down by helping you find options that offer better value compared to others. You may also be able to save money with an award-winning life insurance policy. You can find out which life insurance providers Canstar has found to offer outstanding value in the Canstar Direct Life Insurance Star Ratings and Awards.

How to find suitable life insurance for you and your family

Here are some tips that may help you find suitable cover for your family:

• It could be a good idea to start with a discussion with your partner about what matters to you both and what risks you would like to have covered.
• Calculate how much cover you may need based on your situation.
• Shop around a selection of providers so you have an idea of what’s on offer across a range of companies. When assessing policies, it’s important to read the product disclosure statement (PDS) and target market determination (TMD) carefully so you’re aware of what is and isn’t covered by the policy, what limits apply and whether it is suitable for you.
• Pay particular attention to the eligibility criteria – for example, if you are adding children to a policy, they may need to be above a certain age.
• Consider variables such as waiting periods (how long you must have had the policy before you are eligible to claim), sum insured amounts and, in the case of income protection, what maximum benefit period would be appropriate.
• Remember to review your cover regularly as your family grows.

Cover image source: Dasha Petrenko/Shutterstock.com