Family Income Benefit
What Is Family Income Benefit?
What would happen to your family financially if you were no longer able to provide an income?
Family Income Benefit provides a regular, tax-free monthly payment during the policy term following a qualifying claim. It is often overlooked in favour of traditional lump-sum payouts, but for some families, replacing an income with a regular payment can make more sense than providing a large lump sum.
Family Income Benefit can be set up as Life Cover, Critical Illness Cover, or a combination of both.
How does Family Income Benefit work?
For example, you could take out a 25-year policy providing £2,000 a month.
If you die after one year, your family could receive £2,000 a month for the remaining 24 years of the policy.
If you die after 24 years, they would receive the payment for the remaining year.
The monthly benefit remains the same, but the potential total payout reduces as the policy term progresses.
This structure can make Family Income Benefit a cost-effective way of providing long-term financial protection for your family.
Why do people buy Family Income Benefit?
Family Income Benefit is designed to replace some or all of the income that would be lost if you died.
A large lump sum can give your family considerable flexibility, but it also leaves them with the responsibility of managing that money.
Some people prefer the certainty of a regular monthly payment. It provides a defined amount of income over the remaining policy term and can reduce the risk of a large lump sum being spent too quickly or being difficult to manage.
For many families, the biggest financial impact of losing someone isn’t necessarily a single large expense or debt. It is the loss of the money that person was bringing into the household, month in, month out.
Step #1 : Establish
Initially, we want to focus on you. Your situation, your needs, and your current understanding of how we can help. At this first stage, we are looking to discover whether or not you would benefit from our services, whether or not we can meet your needs, and if we feel we’re a good fit, then we can discuss what our remit will be and how we can work together.
The first meeting is an opportunity for us to explain how we work and what we would charge. A meeting in no way equates to an obligation on your part to take things any further, if you feel we’re not right for you.
Replacing household income
A regular monthly payment can help your family maintain their standard of living and continue meeting their existing financial commitments.
It can help provide a predictable source of income at a time when the family may be adjusting to a significant change in circumstances.
Covering household bills
The benefit could help towards mortgage or rent payments, utilities, food, childcare and other regular household expenses.
These costs continue whether your home is owned or rented, so replacing household income can be an important part of financial protection.
Supporting children
Cover can be structured around the years when your children are financially dependent on you.
This can help provide financial support for their education, childcare and other costs as they grow up.
Providing a regular payment
Some people prefer the idea of replacing an income with a regular payment rather than leaving their family with a large lump sum to manage.
A large amount of money can feel overwhelming, particularly during a period of grief. A regular payment can provide greater structure and certainty over the period for which the cover is designed.
Taking Family Income Benefit on its own
Family Income Benefit doesn’t necessarily need to replace traditional lump-sum cover. The two can work together.
For example, a lump sum could be used to clear a mortgage or other major debt, while Family Income Benefit provides an ongoing monthly income to help cover household expenses.
The right amount of Family Income Benefit, the policy term and the split between Life Cover and Critical Illness Cover will depend on your circumstances and your family’s financial needs.
The objective isn’t simply to find the cheapest monthly premium. It is to understand what financial risks need to be protected and how different types of cover can work together.
What common mistakes are made with Family Income Benefit?
As with any insurance, there are a few pitfalls that people can fall into.
Specifically looking at Family Income Benefit, possible mistakes might be:
Step #1 : Establish
Initially, we want to focus on you. Your situation, your needs, and your current understanding of how we can help. At this first stage, we are looking to discover whether or not you would benefit from our services, whether or not we can meet your needs, and if we feel we’re a good fit, then we can discuss what our remit will be and how we can work together.
The first meeting is an opportunity for us to explain how we work and what we would charge. A meeting in no way equates to an obligation on your part to take things any further, if you feel we’re not right for you.
Getting the Life and Critical Illness allocation wrong
When combining Life and Critical Illness Cover, it is important to consider how much benefit is actually required for each.
The amount of income your family would need following your death may not be the same as the amount you would need if you survived a critical illness.
One of the biggest mistakes is simply focusing on the monthly premium without considering whether the level and term of cover are sufficient.
Forgetting about inflation
Family Income Benefit is designed to provide income over a potentially long period.
The cost of household essentials such as energy, rent and food can increase over time. A fixed monthly payment may therefore have less purchasing power in the future than it does today.
It is important to consider whether the level of cover remains appropriate throughout the policy term and whether some form of inflation protection should be considered.
Assuming Family Income Benefit replaces other protection
Family Income Benefit shouldn’t automatically be viewed as a replacement for Life Insurance or Income Protection.
Different policies serve different purposes and can work alongside each other.
For example, Life Cover may provide a lump sum to deal with major liabilities, Family Income Benefit can provide ongoing household income, and Income Protection can protect your own income if illness or injury prevents you from working.
People buy Family Income Benefit for month-to-month peace of mind once the large liabilities have been taken care of in case the worst happens. This is why we take time to fully appreciate clients’ immediate and future needs and use policies like Family Income Benefit to create more tailored packages providing better fit over the years.