What is family income benefit insurance?

Family income benefit is a type of life insurance that pays out a tax-free regular income for a set amount of time if you were to die.


How does family income benefit work?

When you buy a family income benefit policy, you choose how long you would like the cover to be in place. Often this ties in with your children’s or dependants ages so most choose a term that takes their youngest to 18 or 21, an age when they are likely to be more financially independent. If you die during this period, the policy will pay a regular income to your family for the remaining term. So, for example, if you take out cover for a 20-year period, and die after 8 years, the policy will pay an income for the next 12 years until the policy finishes.

This type of cover can provide valuable peace of mind that in the event of your death, your loved ones would still be able to cover any monthly outgoings.

If you’re concerned about rising living costs eating into the purchasing power of the income paid, you can choose to ‘index link’ the cover to inflation rates. That way, you’ll have peace of mind that the benefit received will keep its value over time.

Remember that other types of life insurance are available, which would pay a lump sum rather than a monthly income upon death.

Some people choose to take out a lump sum policy as well as family income benefit, with the aim that the lump sum will pay off the mortgage and other debts, whilst the income provided by the family income benefit will cover other monthly outgoings.

Family income benefit should not be confused with income protection cover, which pays a monthly income to replace part of your salary if you are unable to work due to accident or illness.


How much does family income benefit insurance cost?

Premiums for family life insurance will vary depending on your individual circumstances such as your age and health, how much cover you need, how long you want the policy to run for, and which provider you go to.

For example, if you are relatively young and a non-smoker, premiums will cost you less than if you are older and a smoker, as there is a lower chance of a claim being made.

When thinking about how much cover you need, consider what other benefits your family might be entitled to on death. For example, many employers offer ‘death-in-service’ benefit, whereby you receive a multiple of your salary if you die. This may not be enough to cover all your outgoings, however, so work out how much monthly income your loved ones might need on top of this to make ends meet.

Many family income benefit plans offer the option to include critical illness cover, so that the policy will pay out not only in the event of death, but also if you are diagnosed with a serious illness. Premiums will be higher if critical illness is added to your family income benefit policy.


Am I eligible for family life insurance?

Different family income benefit policies may have slightly different eligibility criteria, but, as a general rule, as long as you’re a UK resident aged between 18 and 64, you should be able to apply for family income benefit insurance.

You don’t need to have a medical to qualify for family life insurance, but you will need to answer questions about your health and lifestyle.

As policies vary, it’s worth seeking expert help from one of our protection specialists at L&C. They can talk you through all the available options and help you find the best cover to suit your needs.
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