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What is family income benefit?
Family income benefit is a type of insurance policy that provides a payout to your family if you die.
Unlike other life insurance policies which pay out a lump sum, family income benefit pays out a steady income over a defined period.
How does family income benefit work?
When you take out a family income benefit policy, you decide the income that your family are to receive in the event of your death, and for how long. Your insurer will work the monthly premium based on this scenario, as well as other factors such as your age and medical history.
If you decide your family requires a monthly income of £3,000 for the next 25 years if you were to die, they will receive this for the remaining term after your death. If you die after the policy has ended, there is no payout unless you take out a new policy.
How much does family income benefit cost?
This type of insurance is seen to be more affordable than other life insurance policies.
The lower premiums are because there is no lump sum and the amount paid out reduces over time, assuming you survive for some of the term. This is in contrast to a lump sum life insurance policy which pays out the same amount at ay point during the policy.
The actual monthly premiums you will pay will depend on how much you decide is an appropriate income and the term of the policy, as well as your age, health and lifestyle.
What are the benefits of a family income benefit policy?
For some, managing a cash lump sum can be seen as overwhelming. Your loved one is likely to need financial advisors to provide guidance on how to manage the funds, which can prove too much at a sensitive time. With a family income benefit policy, the monthly income means that your loved ones will have some comfort that bills will be paid, without having to think about budgeting or investments.
Are there any drawbacks to family income benefit?
With a standard life insurance policy, for many people the idea is that the lump sum payout would enable their family to pay off the mortgage and continue to live in the family home without the worry of mortgage payments. This is unlikely with a family income benefit policy. Unless you die early on in the policy and the monthly insurance payout continues to contribute to your mortgage until completion, the payouts are likely to end before the mortgage is resolved.
If paying off your mortgage in one go is important to you and your family, a lump sum life insurance policy is likely to be a better fit.
Can I get a family income benefit policy with my partner?
Yes, you can get both individual and joint policies.
A joint policy only provides one income, payable after the first policyholder dies, making it the cheaper option. To guarantee two-income payouts, for example, to support children should both parents die, two individual policies will be required.
Will my family income benefit premiums stay the same?
You will have the option of fixed (guaranteed) or reviewable premiums.
With reviewable premiums, your monthly payments will be less initially but will be subject to annual review. This means they could increase during the life of the policy and could become unaffordable.
With guaranteed premiums, you will pay more from the start of the policy, but you have the security that they will be fixed until the term ends.
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Will my family income benefit payments increase with inflation?
You will have the option of index-linking your family income benefit payments, although this comes at a cost to your monthly premiums.
It is important to consider the length of the term and potential increases in the cost of living over that period. An income of £3,000 a month in 30 years time will not be worth the same as today.
Can I include my family income benefit in a trust?
Yes, as with other life insurance policies, you can write a family income benefit in a trust.
This means that your family will be able to bystep the probate process to access the funds quicker.
How can I learn more?
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