As parents, protecting our children and our family is our number one prerogative every single day. We are on hand with the plasters when they fall and graze their knees, we’re dropping everything when they are feeling under the weather and we dry their tears when the playground taunting gets too much.
What about though, if something happens to you and you can’t be there for them? What if you pass away? You can still protect your family in a slightly different way – with insurance. It’s literally what insurance was invented for. Protection and peace of mind when your family will need it most. None of us want to think about the day that we won’t be there anymore, but it’d be foolish to think that we’re invincible.
What is family income benefit?
This is where family income benefit comes in. Unlike life insurance policies which typically pay out a lump sum to the policyholder’s beneficiaries upon passing away, family income benefit provides regular tax-free payments (monthly or annually) should you pass away during your term.
A lot of people like the idea of regular payments as they are much more manageable than a large windfall. Losing a loved one is stressful enough without having to worry about what to do with a lump of cash in the bank.
Family income benefit is essentially designed to provide a replacement for the salary you were bringing in, giving your family financial security until the policy expires. It might not be the most popular or well-known option on the market, but it’s the perfect product for young families as it’s super affordable and cheaper than life insurance.
How does it work?
When you take out a family income benefit policy, you pay monthly premiums as you would with any other type of insurance. You decide how long your policy term is. This could be as many years as it would take for your children to be financially independent, or until your mortgage is paid off and you have more cash in the bank.
If you take out a 30 year policy and pass away five years into it, your family would receive payments for the next 25 years. If you were to pass away 28 years into the term, the payments would be limited to the last two years of the policy. If you don’t pass away within the term, there will be no payout – again, just like any insurance policy.
Is it expensive?
As I mentioned, it’s generally affordable, coming in cheaper than traditional life insurance. It’s different for everybody though as premium prices are based on a few individual factors. These commonly include:
- Your age when taking out the policy. The older you are, the higher your premiums will be so it’s definitely worth getting in there early with any kind of life insurance product.
- Your health. If you have pre-existing medical conditions, these will need to be taken into account and could make you a ‘higher risk’ applicant. If you smoke or drink in excess of recommended guidelines then this will also increase your premiums.
- The length of the term. This goes back to what we were saying a little earlier about how long you opt for your policy to last. The longer the policy term, the higher the premiums
- The amount of the income. As you can imagine, the higher you want your payout to be, the higher the monthly premiums will be.
It’s most effective to have two single policies within the family so that both parents are covered, particularly if you both earn money. Of course, it’s cheaper to take out a joint policy so if you are looking to keep costs down, that might be your best bet.
When might family income benefit not be right for me
Life insurance is very much about finding the right product that works for you and your circumstances. Family income benefit won’t be right for everyone. Firstly, if it’s the big costs that you are worried about leaving behind when you pass away, you’ll want to look at something different. Family income benefit isn’t suitable for paying off a mortgage or big debts. For that you will want life insurance or mortgage protection.
Family income benefit is designed for those household living costs that will be impacted with one less salary coming in; school uniforms each year, school books, food on the table, fuel in the car, driving lessons when the time comes.
Family income benefit policies also inevitably expire at some point. If you want to ensure that your family receives a payout no matter when you pass, then you might want to explore a whole of life policy, also known as assurance. These policies will deliver a fixed payment no matter when the claim comes in.
There’s a lot of great insurance products out there on the market, but if you are perhaps without any cover at the moment and know you should have some, family income benefit could be a great place to start. Designed for families, affordable and the peace of mind that every parent needs.