Family Income Benefit may be an option worth considering when looking for better-knownand protection options…
- FIB policies can cover the monthly income of the policyholder for a pre-defined period should he or she die
- The policies are not very common but are typically thought to be a cost-effective life cover option
- It’s similar to decreasing term life insurance in that the level of cover decreases over time and there will be no payout if no claim has been made by the time the policy ends
Family Income Benefit is a little-known form of life insurance that could offer a cost-effective way of arranging the financial cover you need for your loved ones.
In the event of a death, the policies are designed to pay out a regular income until a specified date in order to replace the income that would have been provided by the policyholder.
While a lot of features may appear very similar to decreasing term life insurance, payouts would be in the form of a monthly, tax-free income rather than a one-off lump sum.
Often people will look for little more than a livable income from a payout in order to cover the essentials; higher levels of protection can be chosen but, of course, this would lead to higher premiums.
The premiums can be either fixed, and guaranteed from the outset, meaning that they won’t change throughout the life of the policy, or they can be reviewable.
After a successful claim, payouts will be made until the term of the policy ends. This means that if, for example, a claim is made after 10 years of a 20-year policy it will continue to pay out for another 10 years; if the claim was made 15 years into the policy term it would pay out for five years.
It may also be possible to arrange a convertible term Family Income Benefit plan which would allow you the option of extending the period that the policy covers, but if you want such flexibility you’ll pay more for it.
Disadvantages of Family Income Benefit policies
It’s important to understand that this is not a savings orproduct; if no claim is made in the course of the policy it will pay nothing at the end.
What’s more, as it offers a decreasing level of cover if, for example, the policyholder were to die a month before the end of the term, then the policy would only pay out for one month.
In contrast, a level term life insurance product could still pay out the full, agreed lump sum.
Who is a Family Income Benefit plan suitable for?
This sort of product is often thought to be suitable for young families with children as it can be affordable and may offer the right level of essential cover.
Did you know…?
- It’s possible to index-link a policy so that it doesn’t devalue with deflation
A policy may, for example, be set up to run until the youngest child would be expected to finish education and be ready to fully support themselves.
Critical illness cover
Many Family Income Benefit policies will offer the option of including critical illness cover for an extra cost.
Look at the cost and policy features, but remember that such protection can also be purchased as a separate product and – if you need it – this may prove a better option.
Joint Family Income Benefit plans
Taking out joint life insurance can be the right option for some people, but there are both positives and negatives to consider.
A joint policy is likely to be more convenient to arrange and cheaper, but it will only pay out once and two individual policies are likely to offer the potential of a much larger payout to any dependants.
There are many ways to cut the cost of life cover and a joint policy may not be the right one for you to choose.
Remember the effect of inflation
It’s typically possible to index-link a policy so that it doesn’t devalue with deflation and this is an option you should think about.
Alternatives and additions to Family Income Benefit
As well as the various life insurance options available such as decreasing term and level term policies, it’s worth thinking about critical illness cover and income protection insurance.
Take into account any death in service benefits you may have through your employment, but remember that these will probably finish if you lose or leave your job.
You could also self-insure, using the money you would have paid in premiums to build up your own savings, but remember that – while everyone should have an emergency savings pot – you’d need a very significant amount to match the potential payouts offered by life protection options.