Family Income Benefit Insurance

Family income benefit insurance is a unique and specialised life insurance policy tailored to meet your family’s needs.

Unlike traditional life insurance, where a lump sum payout is provided to your beneficiaries, family income benefit offers a different approach.

Here, instead of a one-time payout, your loved ones receive a regular income stream for a predefined duration.

This serves to replace the lost income and provides stability during challenging times.

Moreover, research shows that 45% of UK couples with at least two children have family income benefit insurance. (source)

In this article, we’ll delve deeper into the workings of family income benefit insurance and explore why it could be the ideal solution for securing your family’s financial future.

What Is Family Income Benefit Insurance?

When you opt for a family income benefit policy, you outline the income your loved ones would require and the duration for which they need support. 

The insurer then calculates the monthly premium necessary to provide this coverage. Let’s clarify this further with a simple example.

Consider a scenario where your family needs £2,500 per month for the next 25 years to maintain financial stability in the event of your passing.

If the unfortunate event occurs within the first year of the policy, your beneficiaries will receive £2,500 per month for the entire 25-year duration.

Should the event happen in year 20, they would receive the monthly payout for the remaining 5 years. 

However, if you pass away after the policy term ends, no monthly payouts will be issued to your loved ones.

Family Income Benefit Insurance Costs

Family income benefit is often considered the most cost-effective type of life insurance available in the UK. 

This is attributed to the fact that insurers are less likely to make a large lump sum payout, and even if they do, it won’t be required all at once.

In contrast, a term life insurance policy pays out the agreed sum in full if you pass away during the term, regardless of whether it’s in the first year or the last. Meanwhile, a whole-of-life insurance policy ensures a payout at some stage.

However, the actual cost of a policy can vary depending on factors such as your health and lifestyle, your age, and the desired payout size

Advantages And Disadvantages Of Family Income Benefit Insurance

Advantages

1. Steady Income Stream: Family Income Benefit Insurance provides a regular income to your beneficiaries, offering financial stability over a specified period.

2. Cost-Effective: It’s often more budget-friendly compared to other types of life insurance because insurers are less likely to pay out a large lump sum.

3. Tailored Coverage: Policies can be customised to suit your family’s specific financial needs, such as the amount of income required and the duration of support.

4. Clear Terms: Unlike some other life insurance policies, the terms of Family Income Benefit Insurance are straightforward, with payouts made over a set period.

5. Inflation Protection: Some policies offer the option to include inflation protection, ensuring that the payout maintains its value over time.

Disadvantages

1. Limited Coverage Period: The coverage period is typically fixed, so if the insured passes away after the policy term ends, no further payouts are made.

2. No Lump Sum: Unlike other types of life insurance that offer a lump sum payout, Family Income Benefit Insurance only provides a regular income, which may not suit everyone’s needs.

3. Premiums Based on Factors: Premiums can vary based on factors such as health, lifestyle, age, and desired payout size, which could make it more expensive for some individuals.

4. No Cash Value: Unlike some whole-of-life policies, Family Income Benefit Insurance typically has no cash value or investment component.

5. Complexity in Choosing: Selecting the right policy can be complex, as it involves determining the appropriate income level and duration of support for your family.

It’s essential to carefully consider these factors and consult with a financial advisor to determine if Family Income Benefit Insurance is the right option for your specific circumstances.

How To Get A Joint Family Income Benefit Policy?

Family income benefit insurance is offered both individually and jointly in the UK.

Opting for a joint policy means there will be a single set of income payments, typically after the first policyholder’s passing, as long as it occurs during the policy term.

While two individual policies may come at a higher cost than a joint family income benefit policy, separate policies guarantee two sets of income payments in the unfortunate event of both parents passing away during the policy term.

Are Premiums Guaranteed On A Family Life Insurance Policy?

When obtaining family income benefit insurance, you’ll typically encounter a choice between guaranteed and reviewable premiums in the UK.

With guaranteed premiums, your payments remain fixed throughout the policy’s term, offering peace of mind without any surprises.

On the other hand, while reviewable premiums may be more cost-effective initially, insurers periodically reassess them, potentially resulting in increased costs. This variability can pose challenges in maintaining affordability over time.

Are Benefit Payments From This Insurance Index-Linked?

Considering inflation is crucial when determining the amount your loved ones would require each month in the event of your passing. 

And with living expenses continually on the rise, it’s essential to anticipate that the money they receive must stretch further over time.

One option available to enhance the value of your family income is to keep pace with inflation, ensuring that the monthly payout maintains its purchasing power. However, this adjustment is likely to result in higher premiums initially.

Family Income Benefit Insurance In Trust

All life insurance policies, including family income benefits, can be established in trust. This legal arrangement, which comes at no cost, ensures that the policy is considered separate from your estate upon your passing.

By placing the policy in trust, your loved ones may receive the funds more swiftly, bypassing the probate process.

Frequently Asked Questions (FAQs)

1. Can I adjust the duration of the income payments in a family income benefit policy?

Yes, family income benefit policies offer flexibility in choosing the duration of income payments. You can tailor the length of support according to your family’s needs.

2. What happens if I miss a premium payment for my family income benefit policy?

If you miss a premium payment, your policy may lapse, resulting in the loss of coverage. Some insurers offer grace periods during which you can make late payments without penalty, but it’s essential to contact your provider to understand their specific policies.

3. Are there any tax implications associated with family income benefit insurance payouts?

In most cases, the regular income payments received through family income benefit insurance are tax-free. However, it’s advisable to consult with a tax advisor to understand the potential tax implications based on your individual circumstances.

4. Can I make changes to my family income benefit policy after it’s been issued?

Some insurers allow policyholders to make adjustments to their family income benefit policies, such as increasing or decreasing coverage or changing beneficiaries. However, these changes may be subject to certain restrictions and approval processes.

5. Is family income benefit insurance suitable for single individuals without dependents?

While family income benefit insurance is primarily designed to provide financial support to dependents in the event of the policyholder’s passing, single individuals may still benefit from the coverage. It can serve as a means to support other family members or contribute to charitable causes.