How does Family Income Benefit work?

If you have children, then you are probably no stranger to the world of worry. We think it comes with the territory!

Of course, one of the biggest things that parents worry about is what would happen to their children should they sadly pass away, and how the surviving partner would cope with bearing the weight that was once shared alone.

There are many products out there under the life insurance umbrella, but when it comes to families, couples, looking for financial peace of mind, family income benefit is a popular one. This guide will explain how family income benefit works, what it actually is, and how it could offer valuable support to you and your family.

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What is family income benefit?

Family income benefit is very similar to standard term based life insurance, but the big difference is the way that it pays out. Term based life insurance offers a one-off lump sum of money, whereas, family income benefit cover would provide your family with monthly, tax-free, payments if you died or, in many cases, if you were diagnosed with a terminal illness.

These payments could be used to support the family finances over a period of time, providing a regular income to assist with things such as household bills and monthly expenditure.

You choose how much you’d like your family income benefit plan to pay out at the start of the policy, and then you’d be paid that amount each month from the point when you passed away, until the end of your policy. For instance, if you were to pass away five years into a fifteen year policy, your family would benefit from a regular monthly payment for the remaining ten years.

Just like standard term based life insurance, if you go on to live a long and healthy life, beyond the end of the policy term, you wouldn’t receive a payout and the policy would simply end.

Parents often opt for this type of insurance in order to cover them while their living costs and family expenses are high. For example, while their children are still financially dependent on them. During this time, many families rely on two incomes, so a family income benefit plan is designed to pay out, provide security and replace a lost income should the worst ever happen.

Family income benefit or family life insurance - which is better?

While we wish we could give a simple answer to this question, it really does depend on your family’s individual circumstances and insurance needs. Here are some things to consider, however:

• Family income benefit is really designed to cover regular expenses, ranging from rent to bills and utilities. If you have a mortgage that you’d prefer to be paid off in one lump sum, pursuing family life insurance may be a more suitable alternative.
   

• Family income benefit can sometimes be a little cheaper than life insurance, as the overall size of your payout depends on when in the term of the policy you pass away. With level term life insurance, whether you pass away on day one of the policy or the day before your cover ends, you will receive the same lump sum amount of money.
   

• If your budget allows, you may want to consider taking out both a family income benefit policy (for example to cover your monthly outgoings while your children are still dependent on you) and a standard term based life insurance policy (for example to clear your mortgage/other debt and/or help with funeral costs). 

For help understanding which type of insurance is best for you and your family, speak to one of our insurance specialists. They will give you all the information you need to make the right choice.

Can I buy a family income benefit policy if I’m a single parent?

Short answer, absolutely! The policy can be a reliable way to provide for your children should you sadly no longer be there to look after them yourself. The right plan would provide the new guardian funds to help protect your child’s standard of living. It can cover some of the everyday expenses, like clothing, food and supplies for school.

Can I buy family income benefit if I’m divorced?

Regardless of what happens in your relationship, most parents want to know that their children never face any financial worries. Family income benefit cover can protect the financial contribution you make to your child’s care, for example, continuing monthly maintenance payments, should you pass away and your income be lost. Knowing that you could provide for your child, even if you were no longer here, could be a huge weight off your shoulders.

Is family income benefit taxable?

Family income benefit is usually considered tax-free. This makes it a great way to provide financial security for your family in the event of your death, as they will receive the full sum insured without any deductions. Premiums are usually paid either monthly or annually, directly from your bank account via direct debit.

What happens if I can't pay my premiums?

If you are unable to pay your premiums, there are usually a few options available.

For example, if you are struggling to pay your premiums because you’re currently off work ill, and your plan includes waiver of premium, your insurer will cover your premiums for you and you won’t lose the cover.

Alternatively, they may be able to grant you some sort of payment holiday or repayment plan.  

It’s important to speak to your insurer before making any decisions about your policy. They will be able to provide more information and advice on what options are available.

How can I buy a family income benefit plan?

Protecting those who mean the most to us is one of the most important things we’ll ever do, which is why it’s essential to get it right.

At Cavendish Online, we help you work out exactly what type of insurance you need, how much cover would be best, and which insurer is the ideal fit. Why not speak to one of our insurance specialists, who can guide you through the process and support you in choosing the best cover for you and your family.