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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.
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.
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.
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.
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!
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.
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 mortgage brokers and we will find the best policy for you at the most competitive premiums.
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!
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:
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.
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.
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.
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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.
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