Spotlight on Family Income Benefit
What is it and why do I need it?
We’ve talked about life cover in this series already. If you die and have life cover in place to pay off your mortgage, the family you leave behind no longer have to worry about paying the mortgage but that’s just one bill. What about other debts, utilities, mobile phones, food and general livings costs? When that person dies, you no longer have their salary to rely on. How will you maintain your standard of living?
Family income benefit is a life cover set up to pay out a monthly amount to the family you leave behind whether that be a partner and/or children.
You can allocate a monthly amount to replace your salary and choose how long you wish to have this paid out for. Below we answer some key question on this invaluable cover.
How does family income benefit work?
When you take out a family income benefit policy, you set the amount you want your family to receive on a monthly basis in the event of your death, and over what time period. We find the best provider for your needs and you pay a monthly premium to secure that cover.
How much cover do I need?
When we work with you we do a full analysis of income and expenditure. Helping you work out what you need for your family to be financially stable in the event of your death.
How long will I need this cover for?
Again we can review your wishes, if you want cover in place until your children are no longer of dependant age or whether you want cover in place right up to when you intend to retire. There are options based in your individual circumstances which we help you work through.
How long will the policy pay out for?
Let’s say you have a policy set up for 35 years and you die in 10 years’ time, the policy will pay out the monthly sum assured to your family for the next 25 years.
Is the pay-out taxable?
No, the monthly benefit amount is paid out free of tax.
How much does this cost?
It is often seen as a budget friendly life assurance, it in no way replaces life cover to pay off a debt. However it can work very well alongside this type of cover. We can help you design your own bespoke protection portfolio when you become a client of McLean Financial Services.
The cost will vary depending on your health, lifestyle, age and amount you wish to be insured for but the reason that it is seen as cost effective is if the insurer does have to make a pay-out then they don’t have to do this as a lump sum.
Why is it a good idea to have this type of policy over a lump sum payment?
Managing a lump sum can prove stressful for the bereaved especially working out how to make the lump sum last. This ensures your family get the same amount of money to handle the monthly budget in the way they are used to. You may however decide that a lump sum payment is what you wish to have in place and our advisers are here to talk you through the options.
What is this policy not suitable for?
This type of policy does not pay off the mortgage, you could use the monthly benefit to pay the mortgage but then how will your family cover the rest of their living expenses. While the monthly benefit may be enough to cover the mortgage it still leaves the family with that debt. The remaining partner is still left to deal with a mortgage. It is better to have separate life cover for the mortgage and use this policy for the family to live as you would like them to in your absence.
Can I have a joint policy?
This type of cover is available on a joint and individual basis. If you go for a joint policy there will be one payment made to the family even if you die along with your partner. If you have individual policies then there would be two sets of income should both parties die. You would be paying two premiums for individual cover and one premium for joint cover.
How can I ensure the right people get the benefit?
We can write the policy in Trust along with an expression of wishes letter so that the proceeds of the policy are paid out straight away. The policy does not form part of your estate so there is no waiting around for 6-9 months, possibly longer, to get the claim settled. It also ensures the money is paid to the right people at a time when they need it most.
Do I need to have children to take out family income benefit?
You do not need to have children to have this type of policy. If you wish your replace your income for your partner’s then you can have this policy set up to ensure they are no worse off as a result of your missing salary.
Are the premiums guaranteed?
There is an option between guaranteed premiums and renewable premiums. With guaranteed premiums you will know for certain what you will be paying for the entire term of the policy and it would be our advice to take the policy on this basis so that it does not become unaffordable for you.
What about inflation?
The cost of living will increase during the term of the policy therefore if you wish to protect the value of the premium we can index link your policy to ensure that the monthly payment meets the rising cost of living throughout the term of the policy.
Ready to chat?
Give us a call on 01224 947 670 and book in with an adviser.