Looking to ensure your family is financially protected, whatever life throws at you? Then a Family Income Benefit policy might be worth considering.
This little-known type of life insurance, often known as FIB for short, can provide a valuable financial lifeline to your dependents should you pass away unexpectedly. Here, we explain how Family Income Benefit works, and how having it could benefit your family.
What is Family Income Benefit?
Family Income Benefit, as mentioned, is a kind of life insurance. Whereas standard life insurance policies pay out a one-off lump sum to your beneficiaries when you die, Family Income Benefit instead pays out a regular income, so your loved ones will have a payment coming in every month to help them cover all their regular outgoings.
This ongoing support means that even if the very worst happens, your family and your children’s childhood should be financially secure.
Working out how much cover you need from a Family Income Benefit policy is often easier than thinking about what sort of lump sum you’d need a conventional life insurance policy to provide you with. All you need to do is think about how much you’d need to cover your monthly costs and the length of time you want to be protected for. This will typically be until your children reach the age of 18, or until they leave education and become financially independent.
For example, if you take out an 18-year family income benefit policy and die after five years, the policy will pay out an income for the remaining 13 years of the policy. If you’re worried about the income not keeping pace with rising living costs, you can choose to index link the policy to inflation rates.
Don’t assume that if you aren’t working, you don’t need cover. For example, if you are a stay-at-home parent, you might think that you wouldn’t need life cover, because you aren’t contributing financially. However, remember that if your partner is working and you are no longer around, they will have to pay for childcare costs if they want to remain in their job.
Why choose Family Income Benefit over a standard life insurance policy?
Receiving a lump sum following a loved one’s death can be daunting – whether it’s the concerns over making it last and spending it for the best or investing it for the future.
Having a regular monthly income that is tailored to cover your family's needs can be easier to manage and less stressful. It will last as long as you need it to - and it will be enough for what you need. Whether it’s monthly bills, childcare costs, school fees, holidays, and birthday and Christmas presents, for example, it will be taken care of.
It doesn’t necessarily have to be an either/or decision. You might decide that you want to take out both Family Income Benefit and term assurance – some choose both policies for different purposes.
Term assurance is generally taken alongside a mortgage. That’s because if someone were to die during the time of the mortgage, it can be repaid, and the family home is secure. However, once the mortgage has been repaid, your family will still have expenses to cover. This is where Family Income Benefit can help. Monthly costs can still be enjoyed – even if you’re no longer around to provide financial support. It will be there to meet these costs and provide financial support.
Family Income Benefit can ensure the proceeds go to whoever you’ve appointed your children’s guardians, should they be left without parents. It can also be a useful way to protect maintenance payments and ensure that they continue to be made, even if you’re no longer here.
There are different ways you can set this up. You can create trusts (that are covered in your will) you can make sure that if the worst happens, your money will go to the person you intended it to – and protect your children’s childhoods if you’re no longer here. Your adviser will be able to provide expert guidance on how to go about this.
Four big advantages of Family Income Benefit
There are lots of advantages of Family Income Benefit, but the main ones are that this type of policy is:
• Affordable
Family Income Benefit is a budget-friendly option. The cost of premiums is often much lower than if you choose a level life insurance policy (that pays out a fixed lump sum). That’s because you’re only paying for the cover you actually need each month, rather than insuring a big fixed sum.
To put it simply, this plan pays out based on what you need. It’ll pay more if you claim early (18 years if the claim was made in year one) and you’ll claim less as time goes on (so 2 years if you claim in year 16). Because of this, it can be much cheaper than insuring a fixed sum for the whole term.
For context, Family Income Benefit cover for a 30 year old non-smoker, that would pay out £1,000 a month until the end of your policy term, would cost just £5.52 a month to cover an 18 year term. This is for index-linked cover too, so the benefit paid would increase in line with inflation over time (alongside the monthly premium).
• Flexible
Many providers offer flexibility in the way benefits are taken in the event of a claim, so your loved ones may be able to choose whether they take a monthly income or a lump sum.
• Easy to manage
A monthly income can be easier to manage than a large lump sum, which could run out too quickly if you take too much out of it, or if you don’t invest it wisely.
• Easy to tailor
It’s usually relatively straightforward to work out how much your family needs to get by on each month, by looking at your regular outgoings, as well as how long you’ll need this income (typically until your youngest child finishes their education).
Where can I buy Family Income Benefit?
There are several ways you can set up a FIB policy; single or joint, index-linked, with or without the addition of critical illness, standalone or as part of a protection package, so it’s worth seeking professional advice on which type of policy is likely to best suit your needs.
Get in touch with one of our expert protection advisers today for fee-free advice on protecting your children’s childhood by calling 0800 073 1932.
