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Protection and cover for your family

If your children, partner or other relatives depend on your income, it’s worth considering income protection insurance and life insurance cover in case of an emergency.

Do I need life insurance?

Life insurance can pay a lump sum or regular payments to your children, partner or other relatives who depend on your income if you’re no longer there to provide.

It’s a good idea to consider life insurance if you have:

  • dependants, e.g. school age children
  • a partner who relies on your income, or
  • a family living in a house with a mortgage you pay.

View our life insurance page for more information, FAQs and a helpline for independent advice.

There are two main types of life insurance policy:

  1. Term life insurance policies: run for a ‘term’ of five, ten or twenty-five years. They are often linked to a mortgage and only pay out if the policy holder dies during the policy term. There’s no lump sum at the end of the policy term.
  2. Whole-of-life policies: pay out when the policy holder passes away, as long as you keep up your premium payments.

What isn’t covered?

Most life insurance policies only cover death – illness or disability aren’t covered. However, some policies provide a terminal benefit, paying a lump sum if the policyholder is expected to die within the next 12 months. Read more about critical illness cover.

How much life insurance cover do I need?

Use the following three steps to work out how much cover you need.

Remember, it’s a good idea to consider if a pay-out will affect any means tested benefits your dependents are eligible for.

  1. Add up your debts.
    Add up your mortgage, credit card and other debts and personal loans. Add monthly costs such as child maintenance and school or university fees.
    You might also want to leave a lump sum for someone or cover your funeral costs.
  2. Check what kind of cover you already have.
    If you’re employed, your benefits package might include a ‘death in service’ pay-out lump sum. This is a multiple of your annual salary at death.
  3. Calculate the cover you need.
    Calculate the life insurance cover you need by taking your total annual cover away from the total your dependants need. It’s also common to calculate this by multiplying your annual income by five or ten.

Use our life Insurance calculator to help you work out how much cover you may need.

Do I need income protection insurance?

Each year one million people in the UK are unable to work due to a serious illness or injury (ABI 2017). Income protection insurance provides cover should this happen.

What is income protection insurance?

Income protection insurance:

  • replaces part of your income - if you can’t work because you become ill or disabled
  • pays out until you can start working again - or until you retire, die or the policy term ends
  • covers most illnesses that leave you unable to work - either in the short or long term (depending on the type of policy and its definition of incapacity)
  • lets you claim as many times as you need to - while the policy lasts.

Remember, there’s often a waiting period before payments start. Generally after your sick pay ends or after other insurance stops covering you. The longer you wait, the lower the monthly premiums.

Can I get by without income protection insurance?

You might not need income protection insurance if:

  • You could get by on your sick pay. For example, if you have an employee benefits package that gives you an income for 12 months or more.
  • You could survive on government benefits. But they might not be enough to cover all your outgoings.
  • You have enough savings to support yourself. Remember that your savings might need to see you through a long period.
  • You could take early retirement. If you’re unable to return to work you might be entitled to take your pension early.
  • Your partner or family might support you. Perhaps your partner has enough income to cover all the two of you need.

Critical illness cover

A standalone critical illness policy will pay a lump sum if you get a serious illness listed in the policy. It’s generally more affordable than joint critical illness and life insurance cover.

Compare critical illness policies before you buy. There are important differences between policies. For example you can combine life insurance and critical illness cover, which may be more affordable than separate policies. An independent financial adviser can help you make the right decision.

Find out more about critical illness insurance and choosing the right policy on the Money Advice Service website.