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Here’s a simple and cost-effective way to protect your loved ones

Here’s a simple and cost-effective way to protect your loved ones

Apr 4, 2022

Putting the right protection in place gives you the peace of mind that your loved ones will receive valuable financial support when you’re no longer around.

While a lump sum might be useful for paying off a mortgage or other debts, it can be more difficult to manage when it comes to meeting regular commitments. How do you know how much to take? How long will it last? How do you use the money to generate an income?

If you’re looking for a simple and cost-effective way to make sure your family will still receive an income if you pass away, read on to find out why “family income benefit” could be right for you.

Ensure your loved ones receive a regular income if you die

Most life insurance policies pay out a lump sum if you die within the policy term.

For example, if you took out a level term assurance policy for £100,000 over 20 years, and you died after 10 years, the policy would pay £100,000 to your beneficiaries.

This valuable tax-free lump sum could enable your loved ones to pay off the mortgage, or they could use it for day-to-day expenses such as rent or utility bills.

However, a life insurance policy that pays out one single sum can be difficult for your family to manage. That’s because it can be tricky to calculate how much cover you need to provide for your family’s financial needs over a period of time.

Unlike traditional life insurance policies, family income benefit pays out a regular income rather than a lump sum.

Here’s an example.

You might have a young child and decide that your family would need a monthly income of £2,000 to be comfortable financially if you passed away. You might decide that you need this cover until your child is financially independent and so you decide on a term of 20 years.

If you died 10 years into the policy, your family would receive a monthly income of £2,000 for the remaining 10 years of the policy.

If you died after 15 years, your family would receive a monthly income of £2,000 for five years.

Like many other term insurance policies, if you die after the 20-year term you can’t make a claim and your loved ones would receive no payout.

Income when your family needs it most

One of the key benefits of this type of cover is that it’s ideal for replacing your income if you’re no longer around.

If you pass away, your family might find it challenging to manage a one-off lump sum at an emotional time when they are also grieving. They will have enough to worry about without having to work out how to budget for their immediate financial needs alongside thinking about how they will need to save or invest the rest of the lump sum.

So, rather than your family having to manage a significant lump sum, they know they can rely on a regular, monthly income to enable them to meet their commitments such as a mortgage or utility bills.

Family income benefit is a valuable option for many types of people. As the name suggests, it’s particularly appropriate if you do have children, as you can arrange your cover to ensure your beneficiaries receive a regular income until your child becomes financially independent.

It ensures there will always be money available for them as they are growing up, meaning you can still ensure they can achieve all the ambitions you had for them.

It’s not just for the main breadwinner in the household

Family income benefit is a valuable choice if you want to replace lost income if the breadwinner in your household were to die.

However, it’s important not just to protect the main wage earner.

For example, if your spouse or partner does not do paid work (or they work part-time) but looks after the home and family, you may still need financial support if the worst happened to them.

You may need to pay for additional childcare, replace their contribution to the household income, or pay for extra help around the house.

The regular income provided by family income benefit could pay for those tasks to be done by someone else, allowing the earning partner to carry on with their paid employment.

A sensible approach might be for each of you to take out an individual family income benefit policy. This way, you can tailor the cover to your specific needs, ensuring that each policy pays an appropriate amount of income without paying too much in terms of your monthly premiums.

Our experts can help you to work out how much cover would be appropriate. We can also scour the market to find the most cost-effective protection for your needs.

Index-linking your payments can ensure your loved ones always have enough

If you want to ensure your family receive financial support if something happens to you, it’s important that the sum they receive maintains its value in real terms.

Here’s an example.

Using the figures above, you took out a family income benefit policy in 2011. The policy provides £2,000 a month cover, over 20 years.

If you died in 2021, the policy would pay out £2,000 a month for the remaining 10 years of the term.

However, using the Bank of England inflation calculator, because of the rising cost of living over the decade to 2021, you’d actually need £2,593 a month to have the same “buying power” as £2,000 in 2011. That’s because inflation averaged 2.6% a year in the 10 years to 2021.

Not taking into account the impact of inflation could leave your family short of money in later years.

One way to ensure the value of your payout always keeps pace with the rising cost of living is to “index link” your cover.

Here, your premiums, and the amount of cover, rise every year in line with inflation. It’s a great benefit that helps to ensure the amount of income your family would receive keeps up with rising living costs.

Read more about how to ensure your cover keeps pace with the rising cost of living.

We can find the right cover for you at the right price

If you want the peace of mind that your loved ones will receive financial support if the worst happened, we can help.

We specialise in helping people like you to put the right protection in place. We work with dozens of the UK’s leading family income benefit providers, which means we can find the right cover for you at a great price.

We even take a lower than standard commission from insurers so we can pass these savings on to you.

  • Specialists in family income benefit and other life insurance
  • Rated 4.9 out of 5 on independent feedback site Feefo
  • We work with dozens of the UK’s leading insurers including Aviva, Legal & General, LV= and Royal London
  • Fast, free, and secure service
  • Independent, meaning we can access a wide range of protection options.

To find out more about family income benefit and why it might be suitable for you and your family, contact one of our experts today.

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