Family Income Benefit

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Family Income Benefit

Family income benefit differs slightly from a conventional life insurance policy. Rather than dependents receiving a lump cash sum if the policyholder dies, family income benefit pays a series of monthly tax-free payments to the named benefactors. These payments run from the time of the claim through to the end of the plan.

For instance, if the family income plan runs for a twenty year period, and the claim is made after twelve years, payments continue for the remaining eight years of the plan. For this reason, family income benefit is often cheaper than term life insurance and other life insurance policies.

Who does family income benefit suit?

Family income benefit is particularly useful for those policyholders who seek a regular monthly income, without worrying about the investment decisions needed to maximise the potential of a lump sum.

Why choose family income benefit?

When considering a life insurance policy, parents are looking to guarantee the financial security of their immediate family. If the policyholder is the main earner, or sole earner, maintaining the family quality of life in the event of policyholder death may be more difficult than it sounds. Family income benefit was devised to provide a substitute for the main family earner’s income.

How often will family income benefit be paid?

Family income benefit insurance pays out a monthly sum to the named dependents. This is made every month between the death of the policyholder and the end of the term. This helps families who have lost their main earner to replace some measure of the income.

Do family income benefit payments always stay the same?

Family income benefit payments may either be maintained at a static level, or policies can be adjusted to climb with inflation. These policies are known as inflation-indexed Family Income Benefit policies, and often require a higher monthly input.

Are there any downsides of family income benefit as opposed to life insurance?

On its own, this type of insurance policy may not be enough to safeguard all of the needs of your family. For instance, those families with a mortgage loan or other outstanding debts may wish to take out insurance policies that clear these sums in the event of a death. Many families choose to take out Family Income Benefit alongside other insurance policies, such as mortgage protection insurance. Family Income Benefit may also include critical illness insurance.

Are family income benefit payments subject to tax?

Family income benefit has the advantage of being tax-free. Although level term life insurance is often an insurance choice for family protection, dependents are then faced with the issue of generating income from a lump sum. If they choose to put money into an account and take interest, this may be subject to tax. Family income benefit is a low-cast, tax-free way of providing family protection and ensuring peace of mind.

I’m thinking about family income benefit, what do I need to consider?

Those consumers that are seriously interested in taking out a family income benefit plan should give thought to the length of the policy. For instance, those families with children may wish to cover the period until their children become financially independent. Family income benefit usually ends when the policyholder would be due to retire.

Are there advantages to joint family income benefit?

In families with two incomes, a joint family income benefit insurance policy may be appropriate. This type of joint policy pays out should either policyholder die. However, should both policyholders die, the joint family income benefit will not pay out double. For families who might need dual payments, therefore, two individual plans may be a better option.

Family income benefit is a relatively inexpensive form of life insurance. Because the sum assured is paid in regular intervals, the risk to the insurance company decreases throughout the term. Family income benefit premiums are generally lower than level term life insurance, for instance, where the insurer faces the same risk throughout.