What is family income benefit insurance?
Family income benefit is a type of life insurance, however, unlike traditional policies that pay out a lump sum, family income benefit provides beneficiaries with a regular, fixed, tax-free income.
Regular income payments run from the date of death, until the end of the policy term, as chosen at the outset by the policyholder.
No benefit is issued if a claim has not been made before the policy expires.
Family income benefit (or ‘FIB‘) can be well suited to new parents with young children, wanting an affordable way to ensure their dependants are adequately provisioned for. Regular payments could replace a lost income and help with long-term budgeting.
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This type of life cover is very cost effective because the risk to the insurer reduces each year and they are not guaranteed to pay out, (unlike whole of life insurance).
Another advantage of family income benefit is it does not require beneficiaries to budget, manage or invest a large lump sum.
This can involve making complicated investment decisions, that incur fees/taxes, at a time when you are grieving.
So, why not compare family income benefit quotes instead?
How does family income benefit work?
Before you buy family income benefit, you need to establish how much income your dependents require each year.
Ideally, this would cover all family living costs, not just now but in the future too.
Then you need to decide how long you require the cover to last, (known as the ‘term‘). Often policyholders ensure the term lasts until their children are financially independent.
Normally this tax-free income is paid monthly, although it can be paid quarterly. This can help with the long-term budgeting of day-to-day living expenses.
To ensure your family income benefit payments meet your dependant’s needs, both now and in the future, it may be a good idea to link it to indexation.
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The cost of family income benefit
If you pass away halfway through a family income benefit term, the number of monthly payments your family receive is just half the maximum.
In contrast, level term cover pays out the full sum assured, regardless of whether the policyholder dies 1 week or 25 years into the term.
As the risk to your insurer reduces each year, as with decreasing term cover, the cost of family income benefit premiums remains low in comparison with other lump sum life cover options.
As with all life insurance, the cost will depend on a number of key factors. Most notably, your age, the annual income you want paid out, the term length and your health/lifestyle.
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Family income benefit vs standard life insurance
Life insurance pays out a lump sum when the policyholder dies, whereas family income benefit provides a regular tax-free income.
However, it does not have to be a case of one, or the other – you can secure multiple policies.
Subject to budget, you may decide to take out standard life insurance, that pays a lump sum for larger one-off costs, (like paying off the mortgage), alongside family income benefit, which provides your dependents with a steady income for day-to-day living costs.
Both options provide protection and security for your loved ones, and it is a case of weighing up the type of the cover you need and what you can afford.
Family income benefit vs income protection
Although family income benefit and income protection sound very similar, they are in fact two very different policies.
Family income benefit only pays beneficiaries after the policyholder dies, whereas income protection policies protect their income whilst they are alive, but unable to work due to an illness or accident.
Please note, we do not currently sell income protection policies at Reassured, although we do sell family income benefit cover.
Family income benefit with critical illness cover
Most family income benefit policies can be extended to also include critical illness.
This means your family could start benefiting from the cover, in the event you were no longer able to work because of falling critically ill.
However, adding a critical illness element to your policy cover is likely to result in paying higher monthly premiums.
Family income benefit with terminal illness cover
As with most forms of life insurance, family income benefit includes terminal illness cover as standard.
This means that you can make an early claim on your policy if you are diagnosed with a terminal illness and predicted to pass away within 12 months.
Your family will begin receiving monthly tax-free payments from point of claim until the expiration of your policy, helping with the burden of on-going living costs.
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Joint family income benefit
Family income benefit is commonly bought on a joint basis. Income payments on a joint policy start from the passing of one of the policyholders, usually the first.
However, it may only be slightly more expensive to take out two single policies.
This could represent better value, as it would mean two separate income payments if both mum and dad were to die during the policy term.
Family income benefit premiums
When you take out family income benefit, you have a choice of either guaranteed or reviewable premiums.
If you choose a guaranteed premium, your insurer will not change the monthly premium price. You always know what you have to pay throughout the policy term.
Whereas, reviewable premiums normally cost less initially, however, your insurer has the power to increase the cost at intervals during the term.
At Reassured we only sell policies with guaranteed premiums, ensuring you know exactly what you have to pay each month.
The cost of your family income benefit premiums is calculated in the same manner as other forms of life insurance; based on the likelihood of a claim being made.
Factors such as your age, health and lifestyle will be taken into account and the cost of your premiums reflect the level of risk you pose.
Can a family income benefit policy be written in trust?
Any life insurance policy can be written in trust, and most providers offer trust forms free of charge.
At Reassured we provide customers with a free trust service to help with the application process. (Although, we do not offer advice).
Writing your policy in trust means that the proceeds fall outside your estate, therefore avoiding probate.
Trusts can also help you reduce the likelihood of having to pay 40% inheritance tax.
Family income benefit in summary:
Pro’s
- Pays out a monthly, tax-free income
- Very affordable, low premiums
- Well suited for young families
- Can help with long-term family budgeting
- Avoid complicated management/investment of a large lump sum
- Optional critical illness element
- Policy can be joint
- Policy can be written in trust.
Con’s
- Only pays an income if you die within the term, (unless you have critical illness)
- Only pays out for the remainder of the term, (amount beneficiaries receive depends on when you pass away)
- Not suitable for paying off a mortgage or other large debts
- You do not get your money back if you do not die during the term.
Why use Reassured to secure family income benefit cover?
As with all forms of life insurance, the cost of family income benefit can differ significantly between insurers.
As a result, it is essential to compare multiple quotes to ensure you receive the most cost-effective cover.
At Reassured we do all of the hard work for you, comparing quotes from the top insurers to secure you the right cover, at the best price.
And our award-winning brokerage service is completely free to use.
If family income benefit is better suited to your family’s needs than traditional life insurance, start your quote today.