In this article, Alexander Hall’s Sam Salim explains the family income benefit; both how the product works and why it is a suitable solution for many.
When discussing life insurance with our clients, most are familiar with the idea of a policy that offers a lump sum in the event of a claim. However, many are not familiar with the concept that most insurers offer the option for a life insurance policy to pay out a fixed monthly income to the beneficiary, once a successful claim is made.
Managing a large lump sum can be 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 deprived of a parent in the UK every year. If they (or their guardians) want the money to last for a long period of time, it will involve a lot of budgeting. In addition, the loss of a parent can come with additional costs, such as an increased need for childcare. Dealing with all this can be a complex process at the best of times, let alone when you’re grieving.
How does family income life insurance work?
When you take out a family income policy, you determine what monthly income you need for your loved ones and over what period. For example, you could determine that your family will need £2,000 a month for the next 21 years (until your youngest dependent child turns 21 and is financially independent). If you died in the first year of the policy, the insurer would pay out £2,000 a month of income for the next 21 years of the policy, while if you died in year 15, they would receive £2,000 a month for the last six years. This policy can be taken out on a joint basis or on a single policy.
Is family income insurance right for me?
In most cases, people take out life insurance to protect an obligation they have, such as a mortgage. This will of course ensure that their dependents can continue to live in their homes, but of course there will be even more regular costs, such as utilities, childcare, groceries and education, to be covered in the coming years. At Alexander Hall, we will often suggest clients take out a combination of a lump sum to cover immediate debts such as a mortgage and then a household income allowance to provide a recurring monthly income to maintain household expenses and replace income . lost to the household.
One area that is 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 approved by the court for child support, most families want to ensure that this income is continuously paid until an agreed-upon age. It is therefore important to think about what would happen if one of the parents died; specifically, how this would affect the family dependent on maintenance income. The family income benefit can be agreed over a certain period of years if you think that your child will be less financially dependent and assume that this is the moment when alimony will be stopped.
Should I consider a family income benefit if I have an income protection policy?
The policy is fundamentally different. Income Protection and Family Income Benefit both provide tax-free monthly income in the event of a claim. Income protection, however, aims to replace income that a household loses if the applicant is unable to work due to illness or injury. Income protection policies continue to provide the monthly benefit amount if the policyholder dies.
Does the coverage include coronavirus?
There are very few exclusions for life and family income policies. New and existing policies cover essentially all causes of death, whether due to ill health, accident or injury and including Covid-19.
How do you get the advice you need?
We believe that income really matters to our clients’ financial future, so when considering any of the policies above, there are many factors to consider, such as arranging coverage with the right provider, for the right amount . It involves an in-depth discussion about your circumstances and which coverages are important to you and are deemed most suitable for you by our advisors. To make an appointment or ask any questions, feel free to contact me on my mobile 07875 80 0543 or email me at: Sam.firstname.lastname@example.org. More information is available at www.alexanderhall.co.uk