Choosing Family Income Benefit Insurance - What is Family Income Benefit Insurance?
Family income benefit may sound like a type of state aid, which is because it used to be the name given to a type of government benefit. However, this now refers to an insurance product.
Should you die, this insurance provides regular payments, which are tax-exempt and sent to your family or recipients regularly. This type of insurance can also be called family income protection.
If you pass away within the restrictions as outlined in your policy, and provided it is within the term of the insurance, your insurer will issue a direct pay out to your beneficiaries for the fixed period agreed.
Due to the monthly payments system, this is usually the starting point of selecting the right family income benefit for you. Calculate how much you think your loved ones would need per month, and for how many years, and use this as the basis for finding the right cover.
How is Family Income Benefit Different from Life Insurance?
Whilst some life insurances pay out on a staggered basis, most remit a lump sum in the event of your death. Family income benefit provides a monthly payment to your family, which for many people is a more sustainable way to manage their income.
Family income benefit is also often more cost-effective than life insurance, due to the different way in which claims are paid out against.
Why is Family Income Benefit Cheaper than Life Insurance?
Generally, life insurance begins at the start of the policy and takes effect immediately. This means that the lump sum insured for is payable should you pass away straight after taking out the insurance, or in many years time. The value payable will not change no matter when a claim is made, provided the policy remains active.
Family income benefit is different because the monthly pay outs will be much smaller than one lump sum. Usually, these have date parameters around them so, for example, if you have a 20-year policy that pays out a monthly benefit every month, and you were to die within the first year of that policy, your recipient would receive the monthly benefit for the next 19 years.
However, if you were to die 15 years after taking out the policy, your recipients would receive the same monthly benefit, but only for the remaining five years left on the policy.
This means that the total pay outs for family income benefit are lower for insurers, making this a less risky and more cost-effective choice.
What is Family Income Benefit Used for?
The most common reason for choosing this type of insurance is to cover the salary of the main income earner in a household, in the event of their death. Therefore, the insurance should cover a monthly pay out equivalent to your net monthly salary, to ensure that your family does not suffer financially should you pass away.
Many families find this a more viable way to control and manage their income, whereas a large lump sum payment can be stressful to manage and understand how to invest wisely to last for several years.
Which Insurance is Best for Homeowners?
Mortgages usually require a lump sum settlement if the property is sold, although may continue to be paid every month with a family income benefit entitlement.
However, many homeowners choose life insurance with the cover value equivalent to the value of the mortgage to ensure that their family can pay off their mortgage borrowing in its entirety.
If you are struggling to choose which insurance is the best cover for your family, give our friendly team a call and we will discuss the pros and cons with you!
Family Income Benefits FAQs
Where is the Best Place to Buy Family Income Benefit?
Online comparison brokers are increasingly common, but we recommend using a professional broker for an insurance product that could have a significant impact on your family in the future.
This is because online quotes are often based on out-dated prices, do not have access to the full market, and use generalised terms to promote specific insurance products.
How Much Does Family Income Benefit Cost?
The cost of your insurance depends on several factors, including your age, health and lifestyle. How much of a monthly pay out you require will impact the premium, as well as how long you wish the cover to last for.
If you would like an accurate quotation, and to be sure that your insurance would be valid under any circumstances, get in touch with Revolution Finance Brokers and we will find the best policy for you at the most competitive premiums.
Does Family Income Benefit Including Critical Illness Cover?
The answer here is that it depends on your policy. Critical illness cover isn’t an automatic inclusion, so check carefully with your insurer whether this is included.
Critical illness cover can be more cost-effective to buy as a separate product, or we can offer combination insurance packages at highly competitive rates!
What Should I Look for on my Family Income Benefit Quotes?
Make sure you know the pros and cons of a policy before signing up and to compare several quotes to make sure you are getting the best deal.
Things to look out for include:
The term of the policy, and whether it can be extended or reviewed.
Whether there are options to convert your plan once it reaches a certain point.
A clear statement showing how much income your family would receive, including any adjustments for inflation.
Whether any conditions may impact your policy, such as becoming unwell, being out of work or becoming disabled.
Do I Have to Pay Tax on Family Income Benefit?
In short; no. Family income benefit is usually paid monthly and is not taxable. You can choose to spend your income however you wish, although the focus tends to be on maintaining general payments to sustain a good quality of life.
Can Family Income Benefit be Put into Trust?
Yes, if you have children and would like to put insurance pay outs into a trust, this is possible. It is fairly common for life insurance payments to be put into trust, to provide for children when they reach a certain age.
You can also put your policy itself into a trust, which means that the policy is technically owned by the trust, and not you personally. This helps to release payments to your family faster should you die, and avoids problems and delays with the probate system.
Are Single Parents Able to Take Out Family Income Benefit?
Yes, you can – family income benefit is a great way to safeguard the future of your children should they not have another parent or guardian to rely on.
Typically this type of insurance would be put into trust under the names of your children, and their carer or guardian in the event of your death would be responsible for controlling this.