This article was last updated on 1 November 2020.
Family income benefit (fib) often raises many questions. Keep reading below to get some answers. Some of the things we look at are:
Family income benefit guarantees your loved ones a regular monthly income. The policy is one of three main types of life insurance, and often these life insurance policies have lower premiums.
The policy ensures dependents can afford mortgage payments, household bills, and other finances if you die within the term of the policy. This is because the payout comes as regular income payments.
What is more, when a loved one dies you might be met with additional costs. For example, the loss of one parent can create extra child care costs. In these circumstances, a family income benefit life insurance policy can help with budgeting.
A lump sum payment is difficult to manage at the best of times, and trickier when grieving. A family income benefit policy takes away the risk associated with a large, one-off, payment. Your loved ones need not worry about how to budget, giving your family security.
Here is a short video explaining how the benefit policy works.
With family income benefit insurance, it is hard to pay off a mortgage. Normally one reason a person has for taking out a life insurance policy is so their family can pay off the rest of the mortgage on their home when they die.
The fact is family income benefit insurance probably won’t help with this. This is because the income benefit arrangement is not a lump sum. After the claim is made it gives small regular payments, so it can be a long time until the income benefit amounts to the rest of the mortgage.
Since your partner is unlikely to pay off the mortgage if you die they may need to make decisions, such as whether to remortgage your family home. If you are worried about them doing this, perhaps a different life insurance policy will suit you better.
Another thing to take into consideration is the cash value you wish to leave. If families experience the loss
later on in the term of the policy, beneficiaries get less. If you want to guarantee more money overall for loved ones perhaps think about an alternative type of life insurance.
Before you choose what life insurance is right for you, speak to your dependents, to determine the level of financial assistance they would need without your support.
Your lifestyle and health can impact the family income benefit quote insurers give you, as with all life insurance policies. But, no medical conditions are strictly exempt from a family income benefit policy.
Your medical history data will be considered, as well as your occupation and other lifestyle factors.These can affect the market prices offered to you.We recommend speaking with advisors to find out the type of plan and premiums you might get.
You need not be worried about Covid-19, since deaths that arise directly or indirectly (illness & injury) due to the pandemic are covered by new and existing policies.
However, premiums might rise for those taking out new policies if the world situation worsens.
First, you really should make an appointment with an expert advisor. The experts will help you figure out how much you want to leave your family, and for how long the payouts would need to continue for. This determines your premiums.
Your premium is either guaranteed or reviewable monthly. You pay this until your policy comes to an end. Some policies have a set length, others cover you for life.
If you pass away in the term of the policy, your children and/or partner will get regular payouts. But, they will only get these for the remainder of the policy term.
Let’s think about an example. Someone with a 40-year policy that dies after 10 years, has 30 years remaining of their term. So, beneficiaries receive the agreed amount for these final 30 years.
If the policyholder had died 25 years after taking out the cover, support would only be given to the family for the remaining 15 years of the life insurance policy.
Particularly for those with a long policy term, inflation means that what your dependents need now might rise in the future. This could be problematic.
If you want their monthly income benefits to keep up with the cost of living, you will need to choose a policy that rises with inflation. Speak to an adviser to find out what policies offer this, and how it will affect your premiums.
Since this varies from person to person you should discuss your personal case and application with advisers.
If your loved ones rely on your salary and savings they may struggle if you pass away unexpectedly. Most people, therefore, want their family income benefit policy to cover major outgoings and living expenses, such as car insurance.
If there is still a mortgage on your home, a lot of guides recommend your life insurance covers this, at least. Then, should your family want to keep the home, your family would be able to afford it. £121,687 is the average outstanding mortgage figure for UK homeowners, to give some perspective.
If you have any other large debts, will your partner be able to cover these? If not, you might want your life insurance policy to cover these.
The exact family income benefit cost depends on multiple things. The main factors affecting price are the policy term, your age, your health, and the payout amount you decide on.
Policy term and payout amount are two things you decide on. Remember, if you die outside of the policy term no income benefit is paid. And, whilst you might want a large payout amount, this comes at a cost.
So, before you decide on these two factors, get in touch with an expert for advice.
Your health and age also impact the price, but often people have little control over these. Diabetes and other health problems, in addition lifestyle factors such as smoking impact price.
This is because they affect your risk of death.
If you are likely to die earlier in your policy your insurer is more likely to have to start payments earlier in the term of the policy. So, they payout more for people in poor health, on average. Because of this, your insurance premiums are likely to go up if you are considered in poor health.
In a similar way, older people often have higher premiums written in their terms. So, you might want to consider taking out a plan sooner rather than later.
The good thing is, out of all the types of life insurance, family income benefit is normally cheapest!
With this type of policy the insurance company only makes small regular payments. These only continue for the remaining duration of the policy. This is why family income benefit is normally the cheapest service, compared to other types of life insurance.
You get to make the choice between guaranteed or reviewable premiums. Below, we explain the difference:
As with other types of life insurance they are not exempt from inheritance tax unless the policy is written in trust. If not in trust, the result is that it is considered part of the estate and then inheritance tax is paid on anything over £325,000.
The good thing is the monthly income payments are tax-free in respect to income tax!
The pros of family income benefit are their cheaper premiums. Another perk is that they can be budgeting tools for dependents. So, you can use them to help ensure loved ones can afford the same quality of life they currently have if you leave them.
The fact of the matter is that all insurance policies have their drawbacks. The main disadvantage here is that the later during the policy term you die the lower the total amount dependents get.
Another thing is that it can be hard for your children or partner to pay off large debts, since. there is no cash lump sum. Should they need a large amount of cash eg. to pay off your mortgage they might struggle to find it.
Remember, you will need to set up a direct debit to pay premiums regardless of your type of life insurance.
Specialists have knowledge and experience that you should consult before deciding whether family income benefit life insurance is right for you. They can explain family income benefit quotes and guide you through the best life policies, and insurance companies.
Many people take out a life insurance policy to ensure their children have access to funds if they die. Others do it to protect a liability such as a mortgage. But which type of life insurance is best?
If you want to minimise total expenses a family income benefit policy could be a good choice. This is because in most cases premiums are lower than any other life insurance policies / options.
Remember though, there is no option for a lump sum payout with a family income benefit policy will not give. But, this might not be a bad thing. Parents with young children, for example, might find a regular income for them better as it ensures coverage of everyday outgoings.
You can get joint policies, yes. Partners often choose to link their policies if neither could afford to live without the other’s salary.
Generally, you get lower premiums with joint policies than two separate ones.But, joint policies only ever pay out when the first policyholder passes away. They never pay out twice
If you have other dependents, two separate policies might offer more security as multiple payouts will be made. What is more they normally only cost 10-15% more than a joint policy. Separate plans mean in the event policyholders die during the term of their own policy their dependents get two income payments.
You will need to request this from your insurance team beforehand if you want to combine family income benefit with critical illness cover.
If you do decide you need both family income benefit and critical illness cover an expert adviser can give invaluable tips. We recommend comparing the cost of both types combined as a bundle with the cost of separate policies. An advisor can always do this on your behalf.
There are many good insurance providers in the UK. Popular ones to consider are Aviva, Vitality, Legal and General, Royal London, LV=, and Aegon.
It is crucial you check any company you choose is authorised and regulated by the Financial Conduct Authority. This ensures you get fair treatment during the course of your policy.
The top two other life insurance policies to consider are:
Perhaps you do not need to take out life insurance at all! This might be the case if you are retired, and/or without dependents. It might also be true if you will get shares as the beneficiary of someone else’s life insurance.
A company that is authorised and regulated by the financial conduct authority can be contacted for advice to help you make your decision. Do this before signing a policy form.
All policies are eligible to be written in trust, though it is something you need to specifically request when getting family income benefit quotes.
People decide to write life insurance in trust because it reduces the likelihood they have to pay inheritance tax. Even if it doesn’t get you below the threshold, the amount you pay can fall.
This is because your policy is not considered as part of your estate. Another perk is that you sidestep the probate stage. Essentially, this means your family get their money quicker.
Have a free consultation to discuss your circumstances and see what options you have:
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In the UK choosing life insurance policies can create issues and confusion. Whole life insurance will cover you no matter when you die, but this comes at a cost. Keep reading to discover whether this might be right for you.
Family income benefit guarantees your loved ones a regular monthly income. The policy is one of three main types of life insurance, and often these life insurance policies have lower premiums.
Permanent health insurance is one type of protection available for your wages. A PHI policy offers financial protection and peace of mind, in the event that you suffer an illness or disability that takes you out of work.
Group Income Protection (gip) gives employees a replacement income. So, it is taken out by companies as an employee benefit, and gives salary protection insurance.
A disability insurance policy can help with a long or short term disability. A disability could result from sickness, an injury, or an accident. If individuals are left unable to work, basic living costs can become problematic.
An endowment plan is a type of life insurance policy but one that doubles up as an investment fund. Read more about how they worka and if they are suitable for you below.
Jane is one of our primary content writers and specialises in elder care. She has a degree in English language and literature from Manchester University and has been writing and reviewing products for a number of years.
