Family Income Benefit

One of the cheapest ways to protect your family on your or your partner's death is to use a Family Income Benefit Policy. Unlike level term life insurance which pays out a lump sum, a FIB policy pays out a monthly or sometimes yearly income. The idea of life insurance for dependents is to normally clear any outstanding debts such as mortgages and loans and then have sufficient cover left to provide a suitable income. Normally a policyholder would use mortgage protection on a decreasing policy to cover their mortgage. However if they had dependents then ideally they would have a level term life insurance that would provide a lump sum adequate to invest and give a monthly income big enough to live on.

In reality though the monthly income can be uncertain. The amount would depend on various factors explored below:

Instead a cheaper way could be to use a family income benefit policy. This kind of policy pays out a tax free monthly or yearly income. A typical case would be a couple with 3 children aged 3, 6, and 9. Depending on your requirements you could say that they would be non-dependents in 18 years when the youngest would be age 21. You would have sufficient cover in place to pay off debts such as mortgage and loans using term insurances. However you would estimate how much a year income would be required. If you required £25,000 a year then a policy would be set up to pay this amount each year or the equivalent monthly income. These policies can be set up on a joint or single life basis.

One way to use Family Income Benefit policies to the maximum is to have 2 single policies instead of 1. If one partner dies then the remaining partner would get the income from 1 policy. However should both parents or guardians die then a monthly income of double would be paid to a beneficiary that would be set up under trust. Obviously if both parents died then the income need would be higher and thus this can work very well. Quote wise having 2 separate policies rather than 1 joint does not cost much more.