AD| Types of Family Income Benefit

Looking after your family under ‘normal circumstances’ can be tough, but how about when you’re living under lockdown?

Family Income Benefit is a great insurance product that’s important for people to keep in mind, especially at the moment in uncertain times.

If you’ve never heard of Family Income Benefit before, let me give you some more information.

Family Income Benefit helps to cover your family’s living costs with a monthly or annual payment, making it easier for you to manage.

It’s one of the best value ways to protect against death or serious illness, and can often be taken out alongside a lump sum Life Insurance policy that’s designed to pay off the mortgage.

A regular income is easier for your loved ones to manage and means they don’t have to worry about dealing with a lump sum which can be overwhelming and easily mismanaged.

What’s the difference between Family Income Benefit and a regular Life Insurance policy?

When my twins were born, one of the first things my husband and I did was take out life insurance. Family Income Benefit didn’t even cross my mind, but it’s an important thing to consider.

They’re both types of Life Insurance with the only difference being that Family Income Benefit pays out an ongoing income whereas Life Insurance pays out a lump sum.

This is the reason why many people are attracted to family income benefit over (or as well as) products such as life insurance. The regular payments are easier to manage. Receiving the payout money in this way means that no one is left to deal with a large and overwhelming sum of money. The cash in the bank is manageable and budgeting becomes simple.

Did you know?

In the majority of family households, at least one regular salary is relied on to cover the bills, mortgage repayments and household spending. This is very much true for our family. However, what would happen if one of the main providers passed away or got diagnosed with a serious illness? This is where family income benefit comes in.

When you take out your family income benefit policy, you can decide how long you’d like your policy – or ‘term’ – to last. As a parent, it’s probably a good idea to opt for this to be the length of time until your children are financially independent; so perhaps 15-18 years. You could also opt for it to last until your mortgage is paid off, and you’re left with more disposable income each month. 

This product is slightly different to other products in that the risk to the insurer decreases with every year that there isn’t a claim. Let’s say for example you choose to have a 23 year term. If you claimed a month into this term, the payments would begin from the date of the claim all the way through to the end of the term. If you claimed 20 years into the term, the payments would again begin from the date of claim but only pay out for two years, because this is what is left of the term.

Now, you may also be wondering what the difference between Family Income Benefit and Income Protection is?

Family Income Benefit pays beneficiaries after the insured person passes away or is diagnosed with a serious illness. Income Protection protects you if you’re unable to work through illness or injury.

It’s important to note that your cover will only keep up with the cost of living if you choose for it to rise with inflation. As such it’s a good idea to get a policy that keeps track of rising prices – especially if it could be paying out over a long period of time.

Is family income benefit expensive?

Family income benefit is generally cheaper than life insurance but as with most insurance products, monthly premiums differ from person to person. The price of premiums are based on your age, the annual income chosen as a payout and if you’ve ever smoked or have any existing health issues. Anything that will decrease life expectancy or be seen as a risk will increase your monthly insurance premiums in some way.

There is the option to get a joint policy between you and your partner and although this is the cheapest way to be covered by family income benefit, it might be a good idea to look at taking out two single policies – particularly if you and your partner are both household earners. Having two single policies would result in two seperate payouts if mum and dad were to both have to be claimed for during each term. It’s certainly worth considering, providing it doesn’t make things too expensive.

You can also opt for your family income benefit to keep up with the rate of inflation. Living costs are always on the rise so the amount of money that your family could comfortably live on at the start of your policy may not be enough in 20 years time when you hypothetically come to claim. You can factor inflation into the annual payout amount that you decide on, or link your policy to indexation which means that it’ll be increased automatically.