Following on from our guide to How Much Life Insurance Do I Need? In where we looked at the benefits of protecting your family. The Family Income Benefit Insurance Guide, will look further into planning for the future for your family and loved ones.
All standard Life Insurance policies will usually pay a lump sum to the policyholder’s family or beneficiaries following their death. However as we have previously mentioned Life Insurance is not a one size fits all solution. Many policyholders have opted for a Family Income Benefit policy. Which will pay an ongoing amount of money to your family up until the policy expires. Which can be paid monthly or annually, payments are made to your family or beneficiaries tax free.
The Family Income Benefit Insurance is a fixed term Life Insurance product that can provide a replacement for your salary. This will offer your family financial security until the policy expires. Although Family Income Benefit Policies are not the most popular choice for customers or as widely known as Whole of Life or Level Term insurance products. They can also be a great way of obtaining cheap life insurance and a sensible choice for young families.
In The Family Income Benefit Guide:
How Does Family Income Benefit Insurance Work?
Similar to all Life Insurance policies, which includes Family Income Benefit Insurance, you pay a set monthly premium. The Life Insurance provider will then pay in return, a fixed monthly income paid to your family and loved ones should you pass away during the policy term. The premiums on Family Income policies can either guaranteed. This means they’ll stay fixed for the duration of the policy, or reviewable. Which means they will be reviewed by the insurer at set intervals. Our specialist advisors will make sure to explain the key differences and your preference.
After you pass away, the insurer will pay your family or named beneficiaries an income. Either monthly or yearly depending on the specifics of your policy, for the remainder of the policy term.
As with a Decreasing Term life insurance policy, the longer a policy runs for, the less will be paid to your family. E.g. If you were to purchase a Family Income Benefit Life Insurance policy for 25 years and you passed away at the 5th year of the policy. Your family would receive payments from the life insurer for 20 years. However if you survived until the 23rd year, your family would receive payments for the final 2 years of the policy.
The Family Income Benefit Protection is usually used to offset the larger financial costs. Which may include a mortgage, raising children etc.
All Life Insurance products have policy limitations as detailed within the Small Print Guide. Some types of death which include suicide or drunken accidents, may be excluded from cover. Which may mean any claim against the Family Income Benefit policy will be rejected. Also by not declaring ongoing lifestyle or health problems will also potentially cancel your Life Insurance protection. Failing to keep up with the premiums on your policy will also mean your policy may be cancelled. Our team of advisors will make sure that you understand all of the key points.
What Is The Cost Of A Family Income Benefit Policy?
All Life Insurance premiums including Family Income Benefit protection are calculated on several key factors. Which vary between each person and what protection they need.
Age: All Life Insurance products are assessed on your age when you take out the policy. As you get older, you become a higher risk and the premiums you will pay, will cost more.
Health: Each person has a certain risk of having a pre-existing medical conditions or a lifestyle choice. Including smoking, or drinking to excess of the recommended guidelines will increase your premiums. Some medical conditions, like diabetes or other chronic illnesses which are hard to control. May make it difficult for you to obtain Life Insurance except from specialist providers.
Policy Term: The length of a policy will create higher premiums, this is because you will become a greater risk as you get older.
Income Amount: The higher the monthly payment you provide for your family after you pass away, will increase the monthly premium cost.
How Much Monthly Benefit Should I Choose?
Although it may be extremely tempting to purchase a Family Income Benefit policy to provide everything and more for your family once you have passed away. It is always important to exercise a certain amount of caution when looking at the monthly premium. Although the premiums might be affordable now, although probably more than you may wish to pay. Looking into the longer term, the premium cost may not be sustainable. Which may lead to you might not be able to keep up with them. Which could eventually lead to the cancellation of the policy.
It is very sensible to carefully consider the essential monthly outgoings your family and loved ones would face after your death and obtain enough insurance to protect those costs. You may decide to match the level of your Family Income Benefit protection with your monthly take-home salary.
When deciding on what you would like your Family Income Benefit product to protect. You will also need to think about how long you wish the policy to last for. Many of the families we speak to often sync the policy term of the protection policies with the ages of their children. This could be worked out to match the policy expiration date to when a youngest child leaves the family home and becomes independent.
Do I Want A Family Income Benefit Policy?
Life Insurance protection is a very important choice to make for the benefit of your family and loved ones. By providing a financial safety net for them for the future. It will provide peace of mind for the long term. A Life Insurance policy with a Family Income Benefit can help your family to pay for the everyday household outgoings. Should you pass away during the policy term. Although it will not provide a large lump sum payment, it will however help to pay the essential bills.
With all Life Insurance policies it is very important that your protection provides the cover that you want and at best possible monthly price. At Life Insurance Cover we help all new and existing customers to find the best cover for their individual circumstances.
Because the potential claim payment are significantly smaller and spread over a long time period. The premiums for Family Income Benefit policies are much cheaper than those for other Life Insurance policies including Whole Of Life and Level Term.
Why A Family Income Benefit Policy Might Not Be For You
Because a Family Income Benefit policy follows the same path as a Decreasing Term Life Insurance Policy in that the total amount your family would receive after you pass away decreases over time. This policy type would not be suitable for you, if you want to ensure the highest level of coverage.
Similar to many other Term Life Insurance Products, these policies will also expire as the term period is a fixed point in the future. An alternative to ensure your family receives a lump sum payment, no matter when you pass away or possibly to cover funeral expenses. You may want take a further look at a Whole Of Life policy. These policies will deliver an agreed payment to your family and loved ones, no matter when you pass away.
As this policy type does not have any time constraints. This could offer protection for you after paying a few months of premiums or after many years of paying a monthly premium.
Another point to raise against a Family Income Benefit policy would be its suitability against primary expenses that your family and loved ones may face after you have passed away. These may include payments on a large debt, including a mortgage. Although a Family Income Benefit policy may allow your family to continue making mortgage payments. It would be more financially sensible for them to receive a lump sum payment. Allowing them to settle a mortgage or other large required payment. Rather than many years of additional interest payments which would naturally accrue over time.
Other Income Protection Products
Because a Family Income Benefit policy only starts making payment when you pass away during the term of the insurance policy. It will not offer protection for any other eventuality. Which may include a critical illness, chronic illness or a potential long term injury. This could prevent you from working and stop you being able to provide for your family in the present and for the future.
You may want to ensure your family always has the financial stability of money coming in. This may include looking into Income Protection Insurance which will offer further stability to you and your family. Many short-term income protection policies can provide a portion of your previous income, for a period of up to twelve months, if you’re out of work due to accident, sickness. While Long-term income protection policies can supply you with a percentage of your income.