Should you have family income benefit?
2020 has taught us a lot so far. Arguably the biggest lesson is that anything can happen and nothing is guaranteed. Our lives have been thrown into unknown territory and many people have lost family, homes and jobs.
With this in mind, should we all be taking life insurance a little more seriously? Many of us breeze through life without too many scares and shocks and possibly never realise the importance of protecting what you have, but coronavirus has made us all think a little differently.
What life insurance product should I have?
There are actually a number of products that sit under the ‘life insurance’ umbrella and they all do slightly different things. It’s worth researching each of these products before you decide which one is right for you.
• Life insurance – pays out a lump sum to your beneficiaries (usually your family i.e. partner and children) upon your death
• Critical illness cover – pays out a lump sum if you become seriously ill or injured. Some policies also pay out if your child becomes seriously ill or injured
• Mortgage protection – taken out alongside your mortgage to ensure that your beneficiaries can continue making the repayments if you pass away
• Income protection – replaces a portion of your income if you become too ill or injured to work
• Family income benefit – provides a regular monthly income for your family if you pass away
In this article, I am going to talk to you about family income benefit because it is one of the more affordable options and – as the name suggests – perfect for any family.
What is family income benefit?
Family income benefit provides regular tax-free income to your family on either a monthly or quarterly basis to cover household and living costs when the policyholder is no longer around. The policy term lasts for as long as you choose. You could opt for it to run until your children are financially independent and no longer needing to rely on your income payments, or until your mortgage is paid off and you’ve got some more free cash.
Unlike other insurance products, with family income benefit the risk to the insurer decreases with every year that you don’t claim. If you choose a 23 year term and you pass away a year in, the payments would begin from the date of your passing until the end of the term – so for 22 years. If you pass away 20 years into the term, the payments would again begin from the date of passing but would only be paid out for 3 years.
One thing that people really appreciate about family income benefit is that it pays out a regular sum as opposed to a lump sum. This means that no one is left having to suddenly deal with a large amount of finances in the event of a family death. It’s manageable, leaving budgeting simple.
It can be used to pay bills each month, put food on the table, put petrol in the family car and/or pay for school uniforms and school books. Whatever your family decides to put it towards, it’s designed to make life a little bit easier and restore some normality when everything changes. It also works perfectly combined with life insurance as you can use that lump sum to pay off a mortgage or any debts, and use the family income benefit to deal with household and living costs.
Is family income benefit expensive?
Family income benefit is generally cheaper than life insurance, but this will differ from person to person. Premium prices are based on your age, the annual income chosen as a payout and your lifestyle i.e. if you’ve ever smoked or had existing health issues. Put simply, anything that will decrease your life expectancy or make you a risk will increase your monthly insurance premiums in some way.
If you can afford to be paying for two individual policies within your household for perhaps both you and your partner, it’s a good idea to do this as ultimately you’ll end up with more money if the worst was to happen and a claim was needed on both policies. Alternatively, you could take out a joint policy with your partner, and this will work out cheaper than two individually.
You could also opt for your family income benefit to keep up with the rate of inflation. You don’t want to claim 20 years down the line and the payout not be enough money for your family to live on due to the price of living rising. You can either factor inflation into the annual payment that you decide on, or you can link your policy to indexation which means that it will be increased automatically.
If you’re concerned that you haven’t currently got any life insurance cover and feel like you need that peace of mind, maybe start with family income benefit. Life is hard enough when we lose someone we love and depend on. Make it a little easier on your family and take out some cover.
*This is a collaborative post