This Guide…
- What is it?
- What Does it Cover?
- Do I Need it?
- How Much Does it Cost?
- Trusts
- Top Providers
- Need Advice?
Written by:
Michael Englefield
Content Manager at Drewberry
What is Family Income Benefit Insurance?
Family Income Benefit (FIB) is a type of Life Insurance that pays out a regular tax-free income (rather than a single lump sum) to your loved ones should the worst happen.
It differs from the traditional Decreasing Life Insurance policies often used to protect a mortgage as these pay out a single lump sum in the event of the policyholder’s death.
The lump sum from Mortgage Life Insurance can be used to clear a mortgage, but there are of course many other daily living expenses that your family would have to meet.
Should the worst happen and your loved ones are left to fend for themselves many agree they would want to ensure their family have a guaranteed regular income until an age where they would be self-sufficient.
That’s where Family Income Benefit steps in to pay out the regular monthly income required to maintain your loved ones’ lifestyle until they are of an age they can look after themselves.
Neil
Pensions Advice
Robert
Income Protection
What Does Family Income Benefit Cover?
Family Income Benefit is there to provide a monthly income into the household to meet your essential living expenses until your children reach an age where they have flown the nest. The most common living expenses that tend to be covered include:
- Food
- Utilities
- Property taxes and related bills
- Car running costs
- School fees etc.
It is common to set up a Family Income Benefit Plan in addition to any Life Insurance for a mortgage. The Family Income Benefit would cover your essential outgoings minus the mortgage, while you’ll have the Decreasing Term Life Insurance in place to pay off the mortgage in full.
The Mortgage Life Insurance will be set to run for the length of your mortgage, while the Family Income Benefit will typically be aligned to run until your youngest child is self-sufficient, at age 21 for example.
Alternatively, your Family Income Benefit may be your sole Life Insurance, in which case you’d add in monthly mortgage payments to the benefit so the mortgage would be covered each month for the rest of the mortgage term.
The best way to structure your Life Insurance will depend on your circumstances. Without good advice it can often all get lumped in together but with good planning we can ensure you have the right Life Insurance policies in place to align with your personal circumstances and make sure it is the most cost effective solution for the risks you are looking to protect.
Jake Mills
Independent Protection Expert at Drewberry
Single or Joint Family Income Benefit Plan?
You can take out single or joint Family Income Benefit.
Single cover protects the life of just one individual, whereas joint cover insures two lives (typically on a ‘joint life, first death’ basis, which means the policy will pay out just once on the death of the first individual).
If neither yourself nor your partner could survive without the other’s income to maintain your standard of living and keep up with essential monthly outgoings, you might want to consider protecting both parties.
Although joint life cover can make sense where there’s a joint mortgage, such policies only pay out once. You may want to consider two single family income benefit policies, with two plans each would pay out individually and the total premium is typically only around 10%-15% per month higher than a joint policy even though you have twice the cover.
Add Critical Illness Cover to Family Income Benefit
Most Family Income Benefit plans provide the option to include Critical Illness Cover. This means the policy would not only pay out if you were to die but also if you were to suffer one of a defined list of critical illnesses.
When you add Critical Illness Cover to your policy it will increase your premiums to reflect the fact that there is a far greater chance of you suffering a serious illness than of you dying. The increase in premium will vary from insurer to insurer. However, given the increased risk the insurer incurs when you add Critical Illness Cover, the price increase will likely be significant.
If there is a real need for protection against ill-health we tend to recommend you consider an alternative product called Income Protection Insurance.
Such a policy will pay out in the event of anything that medically prevents you from doing your job, rather than only paying out for a specified critical illness.
Egle Blusiute
Independent Protection Expert at Drewberry
Keep in mind that a number of family protection plans will only allow you to include Critical Illness Cover if you opt for reviewable premiums, which could see the cost of your cover rise unpredictably year-on-year.
Excellent service at convenient times of the day specified by me. All product options were clearly outlined and I am very pleased.
Do I Need Family Income Benefit?
How would your family meet their financial obligations without you and the income you provide?
If you’re unsure about how these essential outgoings would be met or believe your family would face significant hardship after you pass away, it’s sensible to look at ways you can protect their standard of living.
Family Income Benefit can ensure your dependants don’t face additional financial stress at a very difficult time. It provides a monthly income to meet their essential outgoings until your family reaches an age where they’re able to cover these costs themselves.
Family Income Benefit may be of particular use to those with children but no partner, as rather than leaving a large lump sum to children who may spend it unwisely it provides a steady income until they’re of an age where they are out of full time education and able to stand on their own two feet.
Even where one party doesn’t work and takes care of the children and home, you may still want to consider insuring them.
That’s because the work they do in the home would likely have to be replaced with paid employees if the surviving individual needs to continue working and earning. Family Income Benefit could provide the regular cash payments to pay for childcare and the upkeep of the home, for instance.
Michael Barrow
Independent Protection Expert at Drewberry
Remember, Family Income Benefit will only pay an income until the end of the policy’s set term. Passing away in the 25th year of a 30-year policy means your loved ones will only receive 5 years of income rather than a big lump sum, as with other types of life cover.
Life Expectancy Calculator
Your Life Expectancy Results
How Much Does Family Income Benefit Cost?
There are a number of factors that will determine the cost of Family Income Benefit (FIB), with one of the biggest being the sum assured. You should set this at a level where your family’s everyday expenses can be comfortably met were you to pass away; setting a higher benefit than this might be tempting but will increase the cost of your cover.
Other factors insurers will consider when pricing your policy include:
- Your age – the older we are, the greater the risk of passing away during the term of the policy
- Your current state of health – those with severe health conditions, especially those which might limit life expectancy, will typically pay more for Life Insurance to reflect the greater risk the insurer is taking on
- Your smoker status – if you smoke, you’re at greater risk of developing a serious, fatal health condition and so insurers will charge more
- Lifestyle and hazardous activities – lifestyle habits, such as regularly drinking more alcohol than is recommended, or participating in hazardous activities on a regular basis, could result in an insurer increasing the cost of your cover
- Family history – has any of your immediate family ever suffered a serious and/or hereditary illness that may impact you? If so, you may pay more for life cover.
You can use our Family Income Benefit quote tool to get instant quotes from the UK’s leading insurers.
Our tool will be able to give you a rough idea of how much your life cover will cost however it doesn’t beat talking to a an adviser to make sure you get the most appropriate cover for your needs. For that don’t hesitate to pick up the phone and give us a call on 02084327333.
Oliver Wigdor
Independent Protection Expert at Drewberry
Setting Up Family Income Benefit in Trust
It may sometimes be beneficial to set up a trust alongside Family Income Benefit. This will see the monthly benefit paid into the trust and it can then be distributed from there, bypassing the deceased’s estate and inheritance tax.
In most cases, Family Income Benefit is paid to the surviving partner of the deceased, who’ll use those funds to maintain everyday household expenses. If the surviving partner is a spouse and it will be paid solely to them, there may not be as great a need to write Family Income Benefit into trust as there is no inheritance tax to pay on transfers of assets, such as Life Insurance payments, between spouses.
However, if the surviving partner is not a spouse (i.e. they’re just cohabiting), this could lead to difficulties.
Similarly, if the policyholder and the spouse both die at the same time, the benefit would typically be paid to children. As such, inheritance tax may be due on the payout.
It’s important to realise that, for inheritance tax purposes, HMRC will ‘gross up’ your Family Income Benefit’s monthly payments to equal a total lump sum.
This means even a modest £12,000 a year benefit (£1,000 a month) over 25 years would become a £300,000 lump sum for tax purposes. When added to the rest of your estate, such as your home, this could easily exceed the inheritance tax threshold and could therefore have inheritance tax implications.
Writing your Family Income Benefit into trust from the outset is one way to ensure it remains outside your estate and will be paid free from inheritance tax when your loved ones need the cash the most.
Setting up a Life Insurance trust might sound complicated, but the expert team at Drewberry help people with this all the time.
We’re able to work through the necessary trust forms with you and liaise with the provider to get this all sorted with minimum fuss.
Josh Martin
Independent Protection Expert at Drewberry
Best UK Family Income Benefit Providers 2018
|
AegonAegon Family Income Benefit plans allows you to add waiver of premium cover for an additional sum.
|
|
AIGThe AIG YourLife Family Income Benefit Plan allows an individual to insure a maximum total benefit (i.e. the sum of all the monthly benefits over the policy term) of £500,000 without having to ask any financial questions.
|
|
Legal & GeneralLegal & General’s Family Income Benefit includes Accidental Death Cover as standard, which will pay out the lower of £300,000 or the sum applied for if you die during the underwriting process. This lasts for 90 days.
|
|
Liverpool VictoriaLiverpool Victoria’s Family Income Assurance plan comes with guaranteed premiums as default and the option to add waiver of premium to the policy.
|
|
Royal LondonRoyal London’s Family Income Benefit includes Terminal Illness Cover as standard.
|
|
VitalityVitality Family Income Cover can have reviewable or guaranteed premiums, which effects the maximum term the policy can run for. As well as the benefit, Vitality will also pay out a lump sum towards funeral costs upon a claim.
|
Get Expert Family Income Benefit Advice
Trying to decide how much your family might need each month – especially if you plan to combine Family Income Benefit with a seperate Decreasing Term Life Insurance to cover your mortgage – can be tricky. One of the expert advisers here at Drewberry can help make sure you have the most appropriate cover at the most cost effective premium.
As well as helping you determine your ideal monthly benefit, the team at Drewberry can help you find the best insurer for your needs and answer any questions you might have about the product itself or any trust arrangements you may require.
We are here to help so please don’t hesitate to pop us a call today on 02084327333 to find out more.
Robert Harvey
Independent Protection Expert at Drewberry
