When discussing life insurance with our clients, most are familiar with the idea of a policy providing a lump sum of money in the event of a claim. Many are unfamiliar however, with the concept that most insurance providers offer the option for a life policy to pay out a regular monthly income to the beneficiary, once a successful claim is made.
Managing a large lump sum can prove a real challenge for families who have just lost a loved one. According to Winston’s Wish (a charity), more than 100 financially dependent children are bereaved of a parent each year in the UK. If they (or their guardians) want to make the money last for a lengthy period, this will involve a lot of budgeting. Furthermore, the loss of a parent can create additional costs, such as a greater need for childcare. Dealing with all of this can be a complex process at the best of times, let alone when you are grieving.
How does family income life insurance work?
When you take out a family income benefit policy, you stipulate what monthly income you would need your loved ones to receive, and over what time period. For example, you may determine that your family would need £2,000 a month for the next 21 years (until your youngest dependent child turns 21 years old and is financially independent). If you died in the first year of the policy, the insurer would pay out an income of £2,000 a month for the next 21 years of the policy, while if you died in year 15, they’d receive £2,000 a month for the final six years. This policy can be arranged on a joint basis or single policy.
Is Family Income Benefit insurance right for me?
In most cases, people take out a life insurance policy to protect a liability they have, for example, a mortgage. This of course ensures their surviving family members can remain in their home, though there will of course be further regular costs, such as utilities, childcare, groceries and education, which will need to be covered in the years ahead. At Alexander Hall, we’ll often propose to clients they take out a combination of a lump sum policy to cover immediate debts such as a mortgage and then a Family Income Benefit to provide a continuous monthly income to maintain the household expenditure and replace the income lost to the household.
One area often overlooked is divorce and family planning. According to UK divorce statistics in 2020, around 50% of divorces involve at least one child under the age of 16. Depending on the financial planning agreed by the court for child maintenance, most families want to make sure this income is paid continuously until an agreed age. It’s therefore important to consider what would happen if one parent passed away; specifically, how this would impact the family relying on maintenance income. Family income benefit can be agreed over a set period of years when you feel your child is less likely to be financially dependent and assume this is when maintenance payment will cease.
Should I consider Family Income Benefit if I have an Income Protection Policy?
The policies are fundamentally different. Income Protection and Family Income Benefit both offer a tax free monthly income in the event of a claim. However Income Protection is designed to replace the income lost to a household if the claimant is unable to work due to illness or injury. Income protection policies will not continue to provide the monthly benefit amount if the policy holder passes away.
Does cover include coronavirus?
There are very few exclusions for life and family income policy claims. New and existing policies essentially cover any cause of deaths, whether this is due to ill health, accident or injury and including Covid-19.
How to get the advice you need
We believe income is truly important to our clients’ financial future, so when considering any of the polices above, there are many factors to consider such as arranging cover with the right provider, for the right amount. This involves having a detailed conversation around your circumstances and which types of cover are important to you and are deemed by our advisers to be most suitable to you. To arrange an appointment or raise any queries, feel free to contact me on my mobile 07875 80 0543 or email me on: Sam.salim@alexanderhall.co.uk. Further information is available at www.alexanderhall.co.uk
