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.