How Does Family Income Benefit Work?
What is family income benefit, and do you need it?
It’s not nice to think about getting ill or dying, so we often approach life insurance with a “well, it probably won’t happen to me” attitude. The reality is that the unthinkable can happen to anyone. Thankfully though, there are ways to safeguard your family and their finances should the worst happen – such as family income benefit. This is a type of insurance that can provide a monthly income for your loved ones if you’re diagnosed with a terminal illness or die.
Read on to make sense of the ins and outs of family income benefit, that way you can decide if it’s right for you. And if you need a little more help before you make a decision, get professional advice from one of our expert Purplebricks Mortgages Protection advisors.
What is family income benefit?
Family income benefit (you might see it shortened to FIB) is a type of insurance aimed at providing your family with a regular income if you die, and with some policies, if you’re diagnosed with a terminal illness.
It covers a set amount, usually equal to some or all of your monthly income, and is paid to your family for a set period. You’ll decide on the exact details (like the payment amount and the length of the term) when you take out the policy. So, you might decide you’d only need it until your children grow up, or until your mortgage is paid off. The aim of this type of coverage is to ensure your family can keep paying their regular expenses – like a mortgage, rent, bills, and utilities.
Important information
For insurance business we offer products from a choice of insurers.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1% but a typical fee is £299.
How does family income benefit work?
Family income benefit pays the cost of your monthly income to your family if you die during the policy term. It’s paid in instalments, rather than as a lump sum. This method of payment can suit families with young children, as the premiums are generally cheaper, whilst still providing regular cash. You can sometimes save costs by taking out joint family income benefit policies, with the insurer paying out just once, usually when the first policyholder passes away.
The monthly payments will only happen during the term of the policy. This means if you took out a 20-year policy and died within the first year, the insurer would pay out for the full 20 years. The later in the term the policyholder passes away, the less that’s paid out, until the policy expires (at which point there’ll be no pay-out).
Is family income benefit different to life insurance?
In short – yes. The key difference is the way the policy pays. As family income protection pays out instalments rather than a lump sum, you’re limited as to what you can use it for. It couldn’t go towards paying off large debts, investing, or leaving an inheritance, for example.
Every life insurance policy and family income benefit policy will have their own set of terms and conditions which spell out what’s covered and what isn’t. Make sure you do your research, and if you need further help, chat to a Purplebricks Protection advisor.
Family income benefit, life insurance, and mortgages
If you have a mortgage, consider whether family income benefit is the best option for you. With a lump-sum that often comes with standard life insurance, your beneficiaries would be able to pay off a mortgage in one go. With family income benefit, your family would still be able to use the instalments to cover a mortgage payment, but they’ll pay over a longer time. This means they’ll have to make decisions on things like remortgaging later down the line.
Quick tips
The monthly family income benefit pay-out is tax free and will pay out until the end of your specified policy term after you pass away.
Other forms of life insurance aren’t for everyone – that’s where family income benefit can be useful. For example, you might find a monthly pay-out easier to manage than a large lump sum pay-out.
When working out the level of cover you’ll need, think about inflation. As the cost of living goes up, the monthly payment may not go as far. It’s possible to take out a FIB policy that accounts for inflation. This is called inflation-linked or index-linked cover.
Family income benefit isn’t just for people who are working. For example, it could be used to cover childcare costs if a stay-at-home parent dies, and their partner needs to keep working.
Family income benefit offers a decreasing level of cover. If the policyholder passes away 6 months before the end of a 20-year policy, it will only pay out for the remaining 6 months.
Is family income benefit right for me?
There are a few different options when it comes to this type of insurance. There’s also life insurance, income protection, and critical illness cover. It’s worth looking into any death in service benefits your employer might offer, too. There are pros and cons to each policy type, and what works for someone else might not work for you.
You’ve got choices, so it’s a good idea to do your research to know exactly what you need. If you want an expert opinion on the right level of cover for you and your family, we’re here to help. One of our Purplebricks Protection advisors would be happy chat through your situation and secure you a competitive family income benefit insurance quote that works for your circumstances.
