If you have recently started a family, or if your circumstances have changed, you may be starting to consider the position of your finances and replacement income if you were no longer around.
If so, this post will be of some assistance, covering the main considerations in relation to family income benefit insurance.
What is Family Income Benefit Insurance and Who is it Suitable For?
Policies are available for a single policyholder or as a joint family income benefit Insurance.
The aim of the policy is to provide a source of regular monthly income in the event that a policyholder dies. The payments are tax-free and would be payable by the insurer until the end of the policy term, providing financial support towards the cost of living for example to the surviving family members and/or children.
An advantage of family income benefit insurance is that a monthly income removes the pressure of budgeting compared with alternative types of insurance policies that would pay out a lump sum in the event of the death of a policyholder.
By providing an income of set monthly payments, the policy enables the remaining family capacity to grieve without the worry of budgeting or managing a lump sum payment.
It is worth noting that the term of the policy is an important detail in establishing the value of the policy and whether or not it is suitable for the family, as for example, if there was a claim towards the end of the term, the payments will stop when the policy ends.
Some thought should be given to the term duration, for example, covering a period of time until any children have finished university, to ensure there is sufficient budget to cover as required, or until the surviving partner is due to retire.
Also, in the situation where a claim hasn’t been required during the term, the policy will simply end and will not have any cash value. In addition, it is worth remembering that a family income benefit Insurance policy is not designed to provide lump sums for example to repay the mortgage in the event of premature death, therefore should this be a desired requirement, a further policy would need to be arranged for this.
How does Family Income Benefit Insurance work?
When an applicant goes through the process of obtaining quotes for family income benefit Insurance policies, they can request a certain level of income that would be payable in the event of a claim.
Once the insurer receives the application, they may complete some underwriting checks to assess the risks involved with the application in order to calculate the monthly premiums that would be required for the level of cover requested.
As discussed, such policies have a term applicable and therefore the applicant would need to assess how much income would be most suitable for the family should he or she passes away, and what policy term would be most sensible ahead of making an application.
It is also worth noting that the value of the income benefit can be tailored to the requirements of the policyholders, however, the higher the insured value will increase the monthly cost of the policy.
Consideration will also need to be made for inflation. As the cost of living tends to increase over time, unless an index-linked policy is chosen, the monthly benefit value from the policy, in the event of a claim could decrease in real terms.
Index-linked policies do often come at an increased cost in monthly premiums though, which would need to be factored in if required.
How much does Family Income Benefit Insurance Cost?
As the risks to the insurer are considerably less with a family income benefit Insurance policy than other types of income protection or life cover, due to the spread of payments should a claim be made, rather than a lump sum being payable, often the premiums are more cost-effective for families.
The cost of the premiums for family income benefit insurance policies depends upon the applicant’s requirements and will vary depending on a range of factors of the applicant(s) including:
- Age of the applicant(s)
- The current health of the applicant(s) upon making an application
- Lifestyle habits of the applicant(s)
- Income levels of the applicant(s)
- Employment status of the applicant(s)
- Level of income benefit selected
- The term of the policy
What are the Alternatives to Family Income Benefit Insurance?
There is a range of insurance policies available on the market these days as alternatives to family income benefit insurance. A couple of examples are as follows:
Whole Life Insurance
Instead of a specific term covered as we have seen with family income benefit Insurance, a whole life insurance policy would provide cover until the applicant’s death, providing a guaranteed cash lump sum. However, with a whole life policy, the premiums do tend to be higher than a family income benefit.
Term Life Insurance
This insurance policy would provide a lump sum rather than regular monthly income payments however there would be a designated term selected, similar to that seen within the family income benefit insurance and the sum assured becomes payable in the event of death during the plan term.
Family Income Benefit Insurance Summary
In this post, we have discussed family income benefit insurance including who may be most suited to such insurance policies, and alternatives available should this type of insurance not be for you.
Should you be seeking a life insurance type of policy, you may wish to instruct the assistance of an insurance adviser who can provide advice regarding the most suitable policy for your requirements, including reviewing the terms of suggested policies to ensure compatibility for the applicant(s).
In addition, insurance advisers can also help to compare various policies, across a wide range of insurers to find the most competitive premium rates available on the market, and therefore can save the policyholder money too.
Call us today on 01925 906 210 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.