Family Income Benefit
If you are a parent it is likely that your major concern when considering life insurance is safeguarding the financial future of both your spouse and your children. This can, of course, be more difficult than it sounds; if you are the sole or main earner in your household, your family may well find it hard to maintain the lifestyle that you currently have.
In most cases, people take out life insurance policies which will pay a lump sum upon the death of the policy-holder. If this has been well-planned, this can mean that any outstanding debts can be paid off, and there may be some left over which could be invested in order to relieve some longer-term financial need. However, this is often not enough. Rather, a substitute is needed for the main earner’s income; it is in this light that Family Income Benefit was devised.
Monthly PaymentsFamily Income Benefit insurance will pay out a sum every month between the death of the policy-holder and the end of the term of the policy. This will help to maintain a regular income which should go some way to replacing that which has been lost as a result of the death of the policy-holder. Depending on the policy you choose, the payments will either be maintained at a static level, or they will rise with inflation. Generally, inflation-indexed Family Income Benefit policies entail higher monthly payments; you should consider whether this higher outlay is worth the benefits that it will bring later.
Although Family Income Benefit presents some enticing benefits, there are several concerns and considerations which you should address. In the first instance, you should always remember that, on its own, this type of policy is probably not enough to safeguard all of your family’s needs.
If you have a mortgage or any other sizeable debts it is absolutely vital that you take out cover which will be sufficient to pay off any outstanding sums which are owed on your debt. As a result, you may well consider taking out Family Income Benefit in tandem with another policy such as Mortgage Protection. More details of these other possibilities can be found elsewhere on this site.
ConcernsThere are also more specific elements to think about. Primarily, you must decide how large an income will be required. You should think about these monthly payments as a way of plugging any gaps that your family will have in their income, and you should also remember that tax is not payable on Family Income Benefit.
Another major concern is the length of the policy; generally, the length of these policies is arranged so that they end when the policy-holder would be retiring. Some people take out shorter policies but, if you have children, you should ensure that the policy lasts for at least as long as it will take for them to become financially independent.
Finally, you should consider whether you should take out a joint policy. These arrangements mean that the policy will pay out on the event of either policy-holder’s death, but if both policy holders die during the term of the insurance the monthly payments will not be doubled.
Joint policies are seldom more than 20% cheaper than two single policies, and the more expensive option comes with the serious benefit that the monthly payments will double. As a result, you must decide whether or not it is important that both policy holders are individually insured.