Family Income Benefit vs Life Insurance

If you have a family it’s essential to have some type of cover in place to protect them financially if you were to pass away. 

Research shows that the average cost of raising a child (over 21 years) is estimated to be £231,713 with an average mortgage debt of £121,687. 

If the main bread winner passes away and your family is left as a single parent household, with only one income (or potentially no income), how would they cope? 

Add in the spiralling cost of funerals and it’s never been so important to get the right cover for your family. 

But what is the best option? Should you take out a life insurance policy or a family income benefit policy? Let’s explore these options… 

What Is A Family Income Benefit 

Family income benefit (FIB), also known as family income protection, is an alternative type of life insurance. 

With any life insurance policy, a lump sum will be paid out to your beneficiaries upon your passing. 

Whereas with a family income benefit, monthly (tax-free) income payments will be made to your beneficiaries for the remainder of the policy. 

Say you were to take out a 30 year family income benefit policy and you pass away 10 years into the policy, your family will receive a monthly income for the remaining 20 years of the policy. 

If you were to pass away 5 years into the policy, they would receive payments for the remaining 25 years of the policy. 

This works to replace any lost income as a result of you passing away and ensures that your family can continue to live life with minimal financial disruption. 

Advantages Of Family Income Benefit 

The main advantage of family income benefit is that it’s ideal for parents who want an affordable way to secure the future of their family, as you can choose a policy length to match up with when your children will be financially independent. 

Monthly instalments mean that your family don’t have to budget or manage a large lump sum pay out. Having to budget means they may have to make complicated financial decisions at an already stressful time. 

Family income benefit gives peace of mind that lost income will be replaced and distributed in convenient payments. 

You can compare family income benefit quotes for free with Reassured

Disadvantages Of Family Income Benefit 

While family income benefit will be helpful in replacing lost income, to cover living expenses, it will not cover larger costs such as paying off a mortgage (or other debt). Nor will it cover funeral costs. 

The other thing to note is that if you do not pass away during the term, no payout will be made and your premiums will not be refunded. 

How Much Does Family Income Benefit Cost? 

Family income benefit tends to be one of the cheaper forms of life cover, as the risk to the insurer reduces throughout the life of the policy. 

It is possible to arrange family income benefit from as little as 20p a day. 

You will need to pay a premium each month and the price you pay for your premiums will be dictated by the following factors: 

- Your age 
- Your health 
- How much cover you want to take out 
- How long for 

Prices for family income benefit will vary significantly between providers so it’s important to compare multiple quotes to find the best cover. Using an FCA regulated broker, such as Reassured, is a quick and easy way to do this. 

Family Income Benefit Vs Income Protection 

Although family income benefit and income protection sound similar, they are two different things. 

As discussed, family income benefit will make a monthly pay out once you have passed away. Income protection will protect your income while you are alive but unable to work due to illness or injury. 

If you want extra protection in case of illness while you are alive, terminal illness cover comes as standard with most life insurance and family income benefit policies. 

This will allow you to make an early pay out if you are diagnosed with a terminal illness and predicated to pass away within 12 months (during the term of your policy). Critical illness cover can also be added to your policy for an extra cost. This will protect you and your family in the event of a serious (but not life threatening illness) during the term of your policy; such as stroke, heart attack and some types of cancer. 

Although you should be aware that once you have made a terminal or critical illness claim, your policy (including life insurance or FIB) will end after the pay out has been made. 

What Is Life Insurance? 

Life insurance protects your loved ones by providing a lump sum pay out after your passing. 

This pay out can be used to pay off your mortgage (or settle any outstanding debt), cover living expenses, pay for your funeral or be left as an inheritance. 

There are different types of life insurance policy that you can take out: 

Level Term Life Insurance 

Level term life insurance is where the amount paid out remains the same throughout your policy. 

This means that no matter when you pass away, your loved ones will always receive the same amount (the amount that was agreed when you took your policy out). 

You will be covered for a specific amount of time (the term) and if you pass away during this time, the pay out will be made. 

If you do not pass away, no pay out is made and the policy expires. 

You will pay a monthly premium. The premium you pay will be based on how much of a risk you pose to the insurer. 

This is calculated using information such as your age, health, smoking status, the level of cover you want and how long for. 

This type of insurance is best suited to paying off large expenses, paying for funeral costs or leaving as an inheritance. You should consult a life insurance lawyer to find out if a Level Term Life Insurance policy is right for you. 

Decreasing Term Life Insurance 

Like with level term insurance, you will be covered for a specific period of time and will pay a monthly premium. If you don’t pass away during the term of your policy, no pay out is made and the policy expires. 

The difference is that your pay out amount will reduce throughout the lifetime of your policy. 

Due to this, decreasing term cover is good for paying back debt that also deceases over time (such as a mortgage). This allows you to have your sum assured align with your mortgage repayments. 

Advantages Of Life Insurance 

Having life insurance provides you with a range of benefits, the main benefit being that you can provide financial aid to your loved ones at a difficult time. 

You can write your policy in trust to ensure that your loved ones get the most out of your policy. Writing your policy in trust means that your pay out will not be subject to 40% inheritance tax. 

Disadvantages Of Life Insurance 

There aren’t many disadvantages to life insurance, as long as you find the right policy that meets your needs. 

One thing to consider is that if you out live the length of your policy, no pay out will be made. 

How Much Does Life Insurance Cost? 

It’s possible to arrange life insurance cover for as little as 20p a day. 

You will pay a monthly premium for your life insurance. The price of the premium will depend on a few factors. These include: 

- Your age 
- Smoking status 
- Your health 
- How much cover you wish to take out 
- How long for

By calculating these factors insurers can work out how much of a risk you will pose to them (the bigger the risk, the more likely a pay out). 

Those who are young, in good health and do not smoke are likely to pay less than those who smoke everyday and have less favourable health. 

Read our article on the benefits of getting life insurance young

Overall, the price of your life insurance will be based on your own unique circumstances. 

Prices also vary dramatically between providers so it’s a wise idea to shop around to find the best price for the cover you need. 

Should I Take Out Life Insurance Or Family Income Benefit? 

Both types of cover have their advantages. Family income benefit is an affordable way to protect your family and ensure they can continue their lifestyle, whereas life insurance gives you an opportunity to settle large expenses. 

Which cover is suitable for you really depends on what you want to protect. 

The best way to work this out is to make a list of everything that will need to be taken care of if you were no longer around. 

Depending on your budget you can take out multiple policies, meaning you can have both life cover and family income benefit. 

For example, you could take out a decreasing term life insurance policy to pay off your mortgage as well as a family income benefit policy to pay for your family’s living expenses. 

The best way to find the cover you need is to compare policies, as levels of cover and prices vary dramatically between providers. 

Using an FCA regulated broker, you can compare quotes for both life insurance and family income benefit to find cover that meets all of your needs. 

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