You shouldn't change your plans. Although the murder was an absolutely awful event it is not the norm for Caye Caulker.

In regards to malaria and dengue - it is a true and credible concern and you should take the relevant precautions. If you choose not to take the pills (talk to your doctor) at minimum you should wear repellent and suitable attire to avoid being bitten.

Caye Caulker isn't for everybody, and if you decide it isn't for you then you can try the next island over, Ambergris Caye or move to another mainland location.

I am sure your family is going to have a memorable and enjoyable vacation if you come here with an open mind ready for some adventure and new experiences.

There is malaria and Dengue in Belize in certain areas. There is Lyme's Desease on the east coast of the US. There is Rocky Mountain tick fever in the rockies, Swine Flu is everywhere. The point is that is you let that all control your decisions, you would stay home and never go out.
CC is beautiful, although a bit laid back for my tastes. AC is a more active. Both are really safe if you use basic common sense.
If you have children, I can not imagine a better place to vacation with fun for all age groups. I even had my 89 year old Dad here for a while and he loved the bird watching and all the attention that the lovely Belizean people showed him.

You should not discount the travelers advice either. Sometimes residents (locals)view things a little less important and do not understand how the difference in living standards can affect a vacation.
That being said, my wife and I have been to both islands and the mainland many times. CC is a wonderful village with the most laid back people who are welcoming and friendly. AC has more activities, but also more visitors (not crowded though) There is obviously more to explore on AC because it is so much bigger. The mainland is yet another world alltogether. Beautiful and undeveloped (except a few cities). You must take precautions anywhere you go. We have never had any medical issues or felt unsafe, but we take precautions. We don't stagger around drunk at 2 in the morning, waving our wallets. I don't know what your kids enjoy, but have heard from many travelers that AC is more to the younger ones liking.
You are doing the right thing by asking questions. Relax, you will love this trip and plan another right after returning.

I am not the sort of person who would try to sugar-coat something as awful as the murder on CC. To the contrary, I have ticked off local politicians by being openly critical of (some aspects of) their response to that sad and gruesome event.
How do I feel about Caye Caulker at this moment? It is the most beautiful place I have ever seen. And rhe people are so welcoming and gracious that my wife and I will probably spend the rest of our lives here.
How safe is it? I walk the streets alone nearly every night carrying nothing but a book. I don't feel threatened by the people around me, I feel protected by the people around me.
I am skeptical about the politicians on this island (and everyplace else) but politicians on CC realize that it is in their own best interest to make CC as safe as is humanly possible. Whether they are motivated by morality or greed, EVERYONE on the island is committed to making Caye Caulker as safe as it is beautiful.

Well said.