In the UK, families handle life insurance a bit differently than in the U.S., but the purpose is the same: to provide financial support if a parent, guardian, or sometimes even a child passes away. Here’s a breakdown:
1. Parents Buying Life Insurance
- Most commonly, parents buy life insurance to protect their children and household.
- If a parent dies, the payout helps cover:
- Mortgage or rent
- Household bills
- Education costs
- General living expenses
- The most common types are:
- Term life insurance – covers a fixed number of years (e.g., until the kids are grown).
- Whole-of-life insurance – covers the insured’s whole lifetime, guaranteed payout.
2. Child Life Insurance (Less Common)
- Parents can take out policies on their children, but it’s rare.
- Typically, this is done to cover funeral costs or lock in low premiums early.
- Sometimes added as a “child rider” on a parent’s policy.
3. Student / Young Adult Coverage
- Universities in the UK don’t usually provide life insurance for students.
- Families rely on their own private policies.
4. Group Life Insurance via Work
- If parents are employed, many UK jobs offer “Death in Service Benefit”.
- Pays a lump sum (often 2–4× annual salary) to the family if the employee dies while employed, regardless of cause.
- This is separate from private life insurance.
5. Trusts & Beneficiaries
- In the UK, families often put life insurance into a trust.
- This avoids inheritance tax (normally 40%).
- Ensures money goes quickly and directly to children/beneficiaries.
Summary:
- In the UK, families mainly protect children by insuring the parents.
- Child life insurance exists but is not common.
- Employers sometimes provide free “death in service” benefits.
- Trusts are widely used to pass money tax-free to families.