Family income benefit (FIB) pays out over time
Family income benefit is another type of life insurance designed to pay regular instalments if you were to die. Compared to the usual lump sum you would receive from a life insurance policy, it’s easier to manage and budget, especially for something as important as childcare or education.
This type of protection is for those who are looking for their loved ones to receive a steady income rather than one lump sum.
Who is family income benefit for?
A family income benefit policy is brilliant for families with regular bills who don't want the stress of managing a large payout during a time of grief. The cover will provide your dependents with a regular monthly income to help them with household bills.
Since they are paid monthly (or annually for some policies), the family income benefit payments can be easier for some families to manage. The regular tax-free income will come in every month to cover the lost income.
Monthly income payments can also be very helpful for families with someone who may need extra care. Family income benefit policies may provide extra peace of mind for families with children or dependents who need long-term care, with the expenses that brings.
How does family income benefit work?
FIB insurance is a decreasing term life insurance policy. Here's what that means:
- It's a life insurance policy, so it only pays out when the insured person passes away.
- "Decreasing term" means the amount of life insurance paid out decreases the longer you have the policy.
- Family income benefit pays out a tax free monthly income instead of a single lump sum.
So, when you put that back together, you can see a family income benefit policy starts paying a regular monthly income to your dependents after you die.
How long does family income benefit insurance pay out for?
You decide the policy's term when you start it. The monthly benefits will begin after you die and continue until the end of the policy term.
For example, if you take out an FIB policy when you are 30 and set a term of 25 years, then the policy will pay a regular monthly sum after you die for as many years are left in the policy. If you died at age 45, then the monthly benefit would continue for a further 10 years.
Is family income benefit taxable?
Family income benefit payments are not taxable because they are not considered part of the deceased person's estate. Thus, they are not subject to inheritance tax.
Can I put Family Income Benefit into trust?
Yes, you can write your FIB policy into trust. The benefit of doing this is to help it bypass any delay in money paid to your family due to probate. Since it is already free from inheritance tax, there are no tax benefits to writing your policy into trust.
By the way, probate is the process of clearing up any debts after your death and distributing your estate to your beneficiaries. Probate can take as little as four weeks or as long as six months. Writing your will is one of the best ways to shorten the probate period. You can get a free will with us! Check it out! 🥳
Family income life insurance options
- Guaranteed premiums: these will never change. You agree on a price when you take out the life insurance policy and it remains the same throughout the course of your cover.
- Reviewable family income benefit premiums: are reviewed on a regular basis by the insurer and could be increased. It could perhaps become unaffordable at some point even if it started as the cheaper option.
- Joint family income benefit cover: this isn't something we would usually suggest though, just in the same way as we wouldn’t recommend joint life insurance.
Some advantages of a family income benefit policy
The major benefit of FIB is that it is given in convenient monthly or even yearly payments, depending on your policy. This is great for replacing lost income of the person who has passed away. It’s important to remember there is no lump sum with this benefit, so large bills or debts cannot be paid off right away. Examples of this could be a mortgage or large credit card debt.
Over the course of the policy, the payout will decrease. If you died in the last year of the policy, your loved ones would only receive a few thousand. So, if your cover was for 20 years and you passed away after 19 years, they would receive 1/20 of the amount.
How much does family income benefit cost?
The cost is determined by the common reasons such as age, health, length of the term and the amount of the income you’re looking for. These each carry some weight in determining the price you would be paying monthly or yearly.
Family income benefit policies are like decreasing term life cover because the total you receive decreases as the years go by. If you’re looking for the highest level of coverage, this might not be the best choice for you.
Is Family Income Benefit the Best Choice?
There are reasons why we do not currently offer family income benefit life insurance policies. While they sound good, and have a few advantages, they are generally not better than life insurance.
Here are several reasons why.
What are the disadvantages of Family Income Benefit?
Let's remember why you are buying your life insurance in the first place. You want to look after your family in case you die. There are other life insurance policies that perform better than family income benefit because they are less expensive and provide more cover.
Family income benefit vs term life insurance
Term life insurance is the gold standard of life insurance policies. With term life, your family receives a lump sum when you die. You choose how much cover you want when you start the policy and you usually have guaranteed premiums throughout the length of the policy.
Term life insurance is a simple, powerful policy that does exactly what it says on the tin. Here's why it is almost always better than a family income benefit policy:
- The life insurance premiums are usually cheaper for the same amount of life insurance cover.
- You can write your policy into trust to avoid probate and minimise inheritance tax.
- The lump sum payment is beneficial for clearing large debts, such as a mortgage.
Term life policies are standard life insurance and offer financial protection for young families thanks to the lump sum payout.
Family income benefit vs family income protection
Family income protection insurance is a form of insurance that pays out if you are unable to work for an extended period of time. For this reason, it's not really life insurance because it doesn't pay out upon death. However, it can be a very useful safety net to cover living expenses and provide regular income payments if you are injured or unable to work.
Generally, many advisors recommend a form of family income protection as a second insurance policy after a quality term life insurance cover.
What about critical illness cover?
Critical illness cover is life insurance that pays out before you die if you are diagnosed with a terminal illness or undergo a major surgery for specific conditions, such as a major heart operation. Here is how critical illness cover is different:
- Pays out a lump sum rather than regular payments
- Limited to specific illnesses and conditions
- Amount of benefit can be greater
Critical illness cover is a great choice if you have a family history of serious illness or want to be sure you can spend time with young children if life takes a turn for the worst.
We don’t currently offer family income benefit but will let you know if we do in the future. We do, however, offer some other options to help take care of your loved ones. You could purchase a term life insurance policy with us, which would be either level or decreasing. It’s not always easy to figure out how much life insurance cover you might need, but feel free to reach out and we would be happy to help.
What is the difference between family income benefit and income protection?
Family income life policies pay monthly or annual payments after the insured person dies. Income protection pays a portion of the insured person's salary if they cannot work. Both policies have their value, but we recommend them as second or third insurance policies after a solid term life policy.
How long does family income benefit pay out for?
Family income benefit continues to pay for the remainder of the original term. So if the insured person passes away 17 years into a 25 year term, the payments would continue for a further eight years. Please note this could be a long time in the event of an early death or a very short time if the insured enjoys a long life.