Income, not a windfall
Family Income Benefit is life insurance that pays a regular monthly amount to your family rather than one lump sum.
If you die during the term, the policy pays out every month from that point until the term ends.
Take a 20-year policy of £2,000 a month. Die in year three and your family receives £2,000 a month for the remaining 17 years. Die in year 18 and it pays for two.
Protection built around an income
Family Income Benefit is designed to replace the income that would otherwise disappear if you died during the policy term.
It matches what's actually lost
When someone dies, what disappears is often a monthly income. Replacing it with a monthly income maps onto the problem far more neatly than a six-figure cheque.
It's usually cheaper
Because the insurer's total liability falls as the term progresses, premiums tend to be lower than level term cover for the same monthly value.
You can often get meaningful protection for a modest amount.
It's easier on the family
A grieving partner suddenly responsible for investing a large sum, while dealing with everything else, can be a real burden.
A monthly payment is intended to help keep the household running.
Normally free of tax
The payments are normally free of tax under current rules, as with other life cover.
A monthly income for the remaining term
The amount paid to your family depends on when you die during the policy term. The monthly benefit stays the same, but the number of payments reduces as the term gets closer to its end.
£2,000 a month over 20 years
Death in year three
Your family receives £2,000 a month for the remaining 17 years of the policy.
Death in year eighteen
Your family receives £2,000 a month for the remaining two years.
An income-replacement layer
It can work well as the income-replacement layer of a protection plan, sitting alongside a decreasing term policy aimed at clearing the mortgage.
One deals with the debt, the other with the day-to-day.
It's also a natural fit for parents wanting cover until the youngest child finishes education, which is often how the term is set.
Decreasing term cover
Designed to provide a lump sum that can be used towards clearing a reducing mortgage balance.
Family Income Benefit
Designed to replace household income with a regular monthly payment for the remaining policy term.
Things to think about
No lump sum
There's no lump sum, so on its own it isn't designed to clear a mortgage.
Inflation can reduce its real value
The real value of a fixed monthly payment erodes with inflation over a long term, though increasing versions are available.
It's protection for a defined period
Because the payout reduces as the term runs down, it's protection for a defined period of dependency rather than a permanent arrangement.
What affects the premium
Several things are taken into account when working out the cost of Family Income Benefit. The amount of cover, the length of the term and your personal circumstances can all affect the premium.
Age
Your age when you take the policy out can have a significant effect on the premium.
Health
Your health and medical history can affect the cost of your cover.
Smoking
Whether you smoke is one of the factors considered when calculating the premium.
Occupation
Your occupation is taken into account when assessing the policy and its premium.
Monthly benefit
The amount of monthly income you choose will affect how much you pay for the policy.
Length of term
The length of time you want the policy to run also affects the premium.
Think about inflation
A fixed monthly payment may buy less as the years pass. Increasing versions of Family Income Benefit are available where keeping pace with inflation is important.
Think about the long term
This is long-term cover with long-term implications. Stop paying and you generally lose the protection.
The amount of cover needs to make sense against a future estate value, not just today's.
And where inheritance tax is a consideration, it should be looked at alongside your wider arrangements.
Getting it right
Family Income Benefit is designed around a simple idea: replacing the regular income your family would lose if you died during the policy term.
The right monthly amount and the right term depend on your household circumstances, existing protection and the period of financial dependency you are trying to cover.
Speak to one of our advisers and we'll build it around your circumstances.
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