For those who value the financial protection that life insurance provides but find that they cannot afford the expense, a Family Income Benefit policy can be an excellent alternative.
This lesser known type of financial protection plan is typically cheaper than the average life cover policy, and it can be an excellent way of providing for your family in the event of your death.
How Does Family Income Benefit Work?
Like a traditional life insurance policy, family income benefit provides money for your family; however, these two types of financial protection are quite different. A life insurance policy provides a lump sum when a claim is made, and the value of the lump sum is the same whether the claim is made two years into the policy, or a year before it terminates (assuming it is level cover).
With a family income benefit, the opposite is true. A family income benefit plan lasts for a fixed amount of time, but if you should die while the plan is live, your family will receive monthly payments up until the policy terminates. If, for example, your plan lasts twenty years, and you die after ten years, your family will receive a monthly payment for the remaining ten years. If you die after 18 years, they receive the same payment for the remaining two years. If you’re still alive when the policy terminates, no payments are received. The benefit payment structure is the main reason why family income benefit is less expensive than conventional life insurance.
Who is it for?
This type of income life insurance plan is ideal for young families, and in fact the plan was designed with them in mind. Conventional life insurance isn’t always affordable for young families, but the much lower cost of a family income benefit (choosing a family income benefit can halve your monthly premium payments in comparison to a conventional life insurance policy) means it’s possible to provide financial protection for your family without compromising your financial security in the present.
Flexible and Tax Free
A family income benefit plan is extremely flexible. You’re able to designate any end date for your policy, and can choose how much income your family will receive each month. For example, you can choose to keep your policy in effect until your youngest child finishes school or university, or until they are old enough to be financially independent.
As with conventional insurance policies, family income benefit provides tax-free payments. The policy does not have a cash-in value, however, as there is no investment component involved. Many companies which offer a family income benefit plan also offer a cash option so that the beneficiary can opt for a cash lump sum instead of a series of monthly payments should a claim be made.
Another option is to link your policy to the Retail Prices Index. This means that the cost of living is factored into how much money your family receives each month. If, for example, you buy a policy this year, and your family makes a claim in twelve years, the payments they receive will be adjusted upwards in line with the increased cost of living. This ensures that your policy will continue to hold its value, and will remain capable of meeting your family’s financial needs regardless of when the claim is made.
Insuring your family’s financial future is important so it’s vital to know what you need and get it right. If you are unsure, it’s highly recommended to consult a regulated financial adviser who can find the best policy for you based upon your specific needs and budget.