I’m sure you know the importance of having a good Life Insurance policy in place, particularly if you have a mortgage or dependents – we bang on about it a lot. And you probably even know something about the difference between Term Life Insurance and Whole Of Life Insurance, if you don’t then why not read our fabulous article on the subject? (See, I told you we bang on) But what do you know about Family Income Benefit and how it’s different from other types of Life Insurance?
Not much? Well…
Family Income Benefit is a way of securing a regular payout to support your family when you die.
But how does it work, and is it right for you?
What Is it exactly?
Basically it’s another type of Life Insurance, but is different in that it doesn’t pay out a one-off lump sum to your family when you die.
Instead, your family will be paid a regular monthly income over a set period.
How Does That Work?
When you take out your policy, you’ll need to decide how much you would like your family to receive, and over what time period. The insurance company will then work out your monthly premium to ensure that it covers that amount.
So first you’ll need to decide how much per month your family would need in order to support themselves financially if you died. For argument’s sake let’s say you want them to receive £2,500 a month for the next 30 years.
If you were to die in the first year of the policy then your insurer will pay the agreed amount to your family for the full 30 years. If you died 25 years after the policy was taken out then your family would receive £2,500 a month for the remaining 5 years of the policy.
Make sense so far?
If the term of the policy ends, and then you die? Your family gets nothing.
And How Much Does It Cost?
The good news is that Family Income Benefit is very budget friendly. This is because an insurer is less likely to have to pay out a huge amount of money – and even if they do have to pay out a lot because you’ve died in the first year, it’s not a huge lump all in one go.
Compare this to a Term Life Insurance policy where the entire amount agreed is paid out whenever you die – whether that be in year one or year 29! – or a Whole Of Life Insurance policy where the insurer knows they’ll have to pay out at some point.
Now, when I say ‘budget-friendly’ I mean that in theory Family Income Benefit is likely to be the cheapest option of the three, BUT, as with other types of Life Insurance, a lot of it depends on you! Your premiums will depend on factors such as your health and lifestyle – so an overweight smoker will find it a lot more expensive than a kale-smoothie-sipping gym bunny.
Also, the cost of your policy will depend on how much you want it to pay out to your loved ones. It goes without saying that the higher you want the monthly payout to be, the higher the premiums.
Who Is Family Income Benefit For?
The short answer here is; anyone who wants to leave a regular income for their family when they die.
Maybe you think that leaving a large lump-sum would prove too challenging for your family. Would they budget correctly and make the money last? Would they ensure that money was put aside for childcare costs, Christmas, birthdays etc for the years to come?
Managing a big amount of money can be complicated and a bit stressful at the best of times, and if your family is grieving it could all be too much to handle. Family Income Benefit will make budgeting for the monthly expenses much easier, and because you choose the length of the policy you can make sure that the monthly income lasts for as long as you want it to – maybe until you plan to retire, or until a time when you expect the children to be financially independent.
And Who Isn’t It For?
If you have a mortgage and you know your surviving partner would struggle to ever pay off without you, then Family Income Benefit might not be your first choice when it comes to Life Insurance.
One of the big reasons people take out Life Insurance is so that if they were to die during the term of the cover, their family could pay off the mortgage in one go and own the family home. Of course with Family Income Benefit this isn’t an option and monthly mortgage payments would have to be made out of the monthly insurance payouts. This means that any future decisions regarding remortgaging or selling the house will fall to your partner.
Another reason Family Income Benefit might not be for you is because over the course of the policy the amount your loved ones would receive falls quite dramatically. If you want your family to receive a substantial amount when you die – whenever during your policy term that may be – then Term Life Insurance or Whole Of Life Insurance are better options for you.
Can I Have A Joint Policy With My Partner?
You can – and it’s cheaper than having two separate policies.
BUT it’s important to know that there will only be one payment, usually after the first policyholder dies (during the term of the policy).
Separate policies, although more expensive, would ensure that there would be two sets of income payments if both you and your partner died.
Are The Premiums Guaranteed?
When it comes to Family Income Benefit you’ll have a choice between guaranteed premiums or reviewable premiums.
Guaranteed premiums mean you’ll know what your premiums will be throughout the entire term of your policy – they’ll never change.
Reviewable premiums can cost less initially, but they’ll be reviewed on a regular basis and your insurer might increase them. With this there is a danger that it could become unaffordable at some point.
Another Thing To Think About….
If you’re considering a Family Income Benefit policy and you are working out the sum your family would need each month if you passed away, it’s important to consider inflation. The cost of living is constantly rising, and so the money that they get will need to stretch further as the years go by.
There is an option to increase the amount they would get paid out with inflation to meet rising costs – but of course this will increase your premiums from the outset.
Can My Policy Be Written In Trust?
Yes. As with all Life Insurance policies, Family Income Benefit can be written in trust. This is a legal arrangement that means the policy will be viewed as being separate from your estate when you die. It’s free to have the policy written in trust, and means that your loved ones will receive the money quicker as it avoids issues with inheritance tax.
So, there you have it – Family Income Benefit: a cheaper way to continue supporting your family after you are gone, and a good way to ensure they budget for the future.