Unless you are particularly familiar with life insurance, it’s possible that you might not have heard of family income benefit. It’s one of the lesser known products, but one that can prove to be invaluable to families.
In the majority of households, bills, mortgage repayments/rent and household spending is reliant on at least one regular salary coming in. But what if something happens to that main breadwinner and they were no longer around to provide? This is where family income benefit comes in.
Ok, so what actually is family income benefit?
Basically, family income benefit is an insurance product that, upon a claim, will provide a regular tax-free income to the beneficiaries on either a monthly or quarterly basis to cover household and living costs when the main earner is no longer around.
The policy term lasts for as long as you choose. For example, it could be up until your children are financially independent and no longer needing to rely on your income payments, or until your mortgage is paid off and you’ve got some more free cash.
Family income benefit is a little different to other insurance products, in that the risk to the insurer decreases with every year that you don’t make a claim. For every year that you don’t claim, that’s less money overall that an insurer will be required to payout if you were to claim. For example, if you choose a 23-year term and you pass away a year in, the payments would begin from the date of your passing until the end of the term – so for 22 years. If you pass away 20 years into the term, the payments would again begin from the date of passing but would only be paid out for 3 years.
If you’re new parents and feeling slightly terrified at the weight of responsibility and what on earth would happen to your little ones if you weren’t around anymore, family income benefit is the perfect product to give you extra peace of mind and protection. It works perfectly combined with life insurance, as you can use that lump sum to pay off a mortgage or debts, and use family income benefit to deal with household and living costs. The regular payments mean that no one is left having to suddenly deal with a huge amount of finances in the event of a family death. The money is made manageable and budgeting becomes simple.
Is family income benefit expensive?
It’s generally cheaper than life insurance, although as with almost any insurance it differs from person to person. The price of premiums are based on your age, the annual income chosen as a payout and your lifestyle, so if you’ve ever smoked etc or have existing health issues etc. Basically, anything that will decrease your life expectancy or make you a risk will increase your monthly insurance premiums in some way.
You could look at getting a joint policy with your partner, but if you can afford two individual policies then this will give you the ultimate protection – especially if both you and your partner are household earners.
You can also opt for your family income benefit to keep up with the rate of inflation. Think about it; the money that you could comfortably live on at the start of your policy may become way outdated 20 years down the line. You can factor inflation into the annual payment amount that you decide on, or you can link your policy to indexation which means that it will be increased automatically.
Whether you take family income benefit out alongside life insurance or not, who doesn’t want the peace of mind that you can still put food on the table, pay for driving lessons, buy school uniforms and pay for school trips when times are hard? Life is difficult enough when we lose a loved one. Make it easier on yourself and get some cover – if nothing else it’s the peace of mind that your family is protected no matter what.
