When we plan for the future, it’s also important to think about the unexpected things that might happen. No one wants to think about passing away before their time but doing so can enable you to take steps to secure your family’s future if needed. One option that is worth considering is family income benefit insurance, James Rixon, Independent Financial Adviser at Pembroke Financial Services explains more.
What is family income benefit insurance?
James says: “Family income benefit insurance is a type of Life Insurance policy that would pay out to your loved ones left behind if you passed away during the term. It would pay a regular income for a set period of time.
“It’s a policy that can provide peace of mind if your family rely on your income to pay ongoing costs. A lump sum can be useful but if it’s to last for an extended period, it can involve a lot of budgeting and potentially the need to invest it, placing the capital at risk. The reassurance of a regular income can provide financial support to loved ones when they need it most.”
As with other types of financial protection products, you’ll need to pay regular premiums during the term. How much these premiums are will depend on a range of factors, including the level of cover you want and policy term, as well as your health and lifestyle.
It is possible to take out a joint policy, providing protection if either you or your partner passes away. You also have the option to link the income paid out to inflation. This would mean higher premiums but ensure spending power is maintained.
What to consider before choosing a family income benefit policy?
If you think family income benefit insurance is appropriate for your priorities, there are two key things to think about when selecting a policy.
1. How much income would your family need?
Understanding how much income your family would need to maintain their lifestyle is important. This should cover the essentials and you may also want to factor in some discretionary spending too.
You should start with the income you need now, but keep in mind that this figure can change if you were to pass away. For instance, you may have other policies or assets that would allow your family to pay off the mortgage, significantly reducing outgoings. On the other hand, if additional childcare would be needed, their expenses may start to rise.
Family income benefit insurance is designed to help your family keep on top of finances at a time when they’re grieving, so it’s important that the income delivered would be enough.
2. How long would the income be needed?
Policies offer various terms too, so you need to consider how long they’d need an income for to maintain financial security. This will depend on your priorities and the overall circumstances of your family. If your partner is reliant on you for income, you may want to ensure a regular payment is made until they’d reach retirement age, or if you have young children, you may link the length of the policy to your youngest completing education.
Traditional Life Insurance or family income benefit?
Life insurance is a commonly chosen type of financial protection that can provide security for loved ones should you pass away too. However, there can be times when both types of protection can add value to your financial plans.
“Life Insurance will pay out a one-off lump sum on your death should you pass away during the term of the policy. It can provide your family with a significant amount to pay higher expenses. This may include paying off the mortgage or other forms of debt or ensuring school fees are paid for until children reach adulthood. It can help your partner ensure the big outgoings are minimised,” James explains.
“However, a Life Insurance policy may not cover the day-to-day expenses in the long term, such as utility bills or children’s clothing.
“This is where a family income benefit insurance policy can complement existing Life Insurance. It’s a step that can give your loved ones the safety net they need to grieve without having to worry about day-to-day costs or taking on additional work.”
It’s important that all financial protection policies are considered with your priorities in mind. Please contact us to discuss if family income benefit insurance should be part of your financial plan or if there are alternative solutions that would be more appropriate.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.