Have you thought about how your loved ones would cope financially should you pass away? This is especially a concern if you’re the main earner in your household and there are substantial debts, such as your mortgage, to repay. With family income benefit, they can rely on a regular income to ease the financial pressure when you’re no longer around to support them.
At Trinity Finance, we help you put the right amount of cover in place to provide your loved ones with an income that completely meets their needs. Our mortgage and protection consultants are ready to guide you on deciding this amount as well as the length of the policy, depending on your circumstances and those of your loved ones. When you’re happy with the degree of protection available should the need arise, your bespoke family income benefit policy can take effect.
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What is family income benefit?
As a type of life insurance, family income benefit provides your loved ones with financial protection when you pass away. Unlike standard life insurance, which pays out a lump sum upon your death, family income benefit ensures a regular tax-free income is paid to your loved ones until the end of the policy term. This income makes it easier for them to budget for the normal monthly outgoings, such as the mortgage payments, utility bills and other living expenses.
How does family income benefit work?
With this type of insurance, you decide how much you’d like your loved ones to receive as income and the length of time the cover should be in place, which is known as the policy term. Should you die within that term, the insurer will begin making regular payouts for the remainder of it. For example, you may decide that a sum of £2,000 is suitable for your loved ones to comfortably live on each month and you may opt for a policy term of 20 years. If you were to die only 2 years into the term, the insurer would pay £2,000 each month to your loved ones for the next 18 years. However, if you were to die after 15 years, the monthly payouts would only be made for the last 5 years of the policy term. To ensure the monthly amounts are reflected in real terms, you can choose to have an index-linked policy, which means the payouts will be kept in line with inflation. If you opt for index-linked payouts, your premiums will increase accordingly.
Single vs joint family income benefit policies
You can take out a single policy or you may prefer to opt for a joint family income benefit policy with your partner. Only one of you is covered with a single family income benefit policy whereas both of you are covered with a joint policy. The latter tends to be a cheaper option than having two single policies. However, the insurer only pays out on the death of the first person. If you have children and you both die within the policy term, this means they will only receive one set of payments as opposed to two if you both take out a single policy.
How much does family income benefit cost?
Family income benefit tends to be the most affordable life insurance option. From an insurer’s point of view, the amount they have to pay out decreases the longer the policy term continues without a claim. As well as that, smaller amounts are paid out each month rather than a large lump sum that would have to be paid with a standard life insurance policy.
How much the policy costs you depends on numerous factors. These include your age, health and lifestyle, the amount of income to go to your loved ones and how long you want the policy term to be. Generally, the younger you are when you take out family income benefit insurance, the cheaper your premiums will be. This is also the case if you’re in good health and lead a healthy lifestyle. If you are a smoker, drink excessively or have a pre-existing medical condition, your premiums will be higher as you’re considered more of a risk to insurers. It’s important to provide accurate information about your health and lifestyle when applying for a family income benefit policy. If you fail to disclose relevant information, you risk a claim being rejected by the insurer, leaving your loved ones without an income.
The cover amount
The more you wish your loved ones to receive should you die within the policy term, the higher your premiums will be. When deciding this amount, think about how much they’ll need to cope financially when your salary is no longer a factor. Consider their living expenses as well as any large debts, such as your mortgage. To make things easier, you may simply decide to opt for a cover amount that’s the equivalent of your salary. Or perhaps the amount can be just enough to cover the mortgage payments if your partner’s salary is sufficient to pay for the other living expenses.
You may have additional cover in place, such as a death in service benefit via your employer. This pays a lump sum, which is usually two to four times your annual salary, to your loved ones if you die while still employed by the company. As your loved ones will benefit from this financial support, consider a lower cover amount with your family income benefit plan. This can make up the difference when working out the total income you’d like your loved ones to receive. Just bear in mind that the death in service benefit will end if you decide to work for another employer.
The policy term
Your premiums are also determined by how long you wish the policy to run for. This could be until the end of the mortgage term, for example, or up to the age you’d planned to retire at. If you have children, you may want to ensure that financial support is in place until they’re old enough to support themselves.
Guaranteed vs reviewable premiums
You can usually choose between having guaranteed and reviewable premiums. Guaranteed premiums will remain the same throughout your policy term, which is helpful for budgeting. Reviewable premiums tend to be cheaper when you start a family income benefit plan but they are periodically reviewed by the insurer. When this happens, the premiums usually increase so you could be looking at significantly more expensive premiums over time.
Get expert advice on your family income benefit plan
Our mortgage and protection brokers – located throughout Kent, London and Edinburgh – are here to help you put financial protection in place for your loved ones. Should the unthinkable happen, you can be sure they’ll be able to cope financially without having to worry about how to pay the bills while they’re grieving. For expert and impartial advice on arranging family income benefit, just give us a call on 01322 907 000. We can guide you on a suitable amount of cover to have and the length of time to let your policy run for. This ensures you have an affordable plan that meets the needs of your loved ones when you’ve passed away. To contact us after office hours, send an email to firstname.lastname@example.org or an enquiry via our contact form and we’ll reply to you as quickly as possible with more information.
Do you need family income benefit?
Family income benefit can make life much easier for your loved ones when you’re no longer around as the regular income ensures they can keep on top of the monthly bills and other expenses. Having a regular income is also easier to manage than a large lump sum, which would be paid out with a standard life insurance policy. It helps with budgeting while a lump sum can be more difficult to manage, especially if it is to be used over a long period.
This type of life insurance is particularly appealing if you have young children. You can ensure that your partner can maintain the family lifestyle and afford additional costs, such as extra childcare. If you’re a single parent, you can have peace of mind that your children’s guardian will have a regular income to support them with.
Considerations when applying for family income benefit
If you want to ensure your mortgage is completely paid off in the event of your death, family income benefit isn’t the best solution. How much is paid to your loved ones depends on when you die and if this is towards the end of the term, the income is unlikely to cover the outstanding mortgage loan. Whilst the money can be used to cover the monthly mortgage payments while it’s being received, this may only be for a short period. To repay the mortgage in full and provide your loved ones with the security of owning the family home outright, a lump sum payout from a standard life insurance policy is more suitable. There’s nothing to stop you from having both types of policy. That way, one can be used to pay off the mortgage and the other to provide your loved ones with a regular income to cover their living expenses.
You may also wish to include critical illness cover in your family income benefit plan. Whilst this will make your premiums more expensive, the insurer will pay out if you’re diagnosed with having a serious illness. Income protection insurance is another consideration. This pays out a percentage of your salary when you’re unable to work because of an illness or injury.
With your family income benefit policy, you may be able to opt for a waiver of premium benefit, depending on the insurer. This is when the insurer agrees to waive your premiums if you’re unable to pay them due to being incapacitated for a specific amount of time. Another consideration is to write your family income benefit in trust. This places the policy outside of your estate so that it’s not subject to inheritance tax. It also means your loved ones can receive the payouts faster as they don’t need to wait for probate to be granted. Our mortgage and protection consultants can discuss all of these options with you to help you decide on the right types and levels of cover to suit your circumstances.
Financially safeguard your loved ones with family income benefit
Have peace of mind that your loved ones can cope when you’ve passed away with a family income benefit policy. At Trinity Finance, we understand that this is an emotional subject and endeavour to make your protection plan as straightforward and stress-free to arrange as possible.
Our mortgage and protection brokers can provide you with expert guidance on shaping your policy. Located in Kent, London and Edinburgh, they can also help you decide whether to opt for a single or joint policy and provide you with impartial advice on the other forms of financial protection available. Just give us a call on 01322 907 000 to get started and benefit from a tailored and affordable solution to financially safeguarding your loved ones.
If you prefer, send an email to us at email@example.com or an enquiry via our contact form. One of our protection consultants will reply to you as quickly as possible with more information about our comprehensive range of insurance and estate planning services.