Family Income Benefit (FIB)

If you are searching for more standard life insurance protection, why not consider Family Income Benefit. This less well-known form of life insurance that could offer a cost-effective way of arranging the financial cover you need for your loved ones

Points to consider

FIB products can offer cover for the monthly income of the policyholder for a pre-specified timeframe in the event of their death.

FIB policies are not so popular but they can offer a low cost life cover option.

This type of policy operates in a similar way to decreasing term life insurance; this is because the level of cover decreases over time. If no claim has been made by the time the policy ends then there will be no pay-out.

However, upon death of the policyholder, FIP pays out a regular income until a pre-determined date; this will substitute the income that would have been provided by the policyholder. The main difference between this, and a decreasing term life insurance, is that the pay-out is not in the form of a lump sum but is offered in monthly, tax free income. If people can live off this, it provides useful cover for living essentials.

After a successful claim, pay-outs will be received until the end of the policy term.

How to get the right life insurance

You can choose a higher level of protection if you are prepared to pay higher premiums, which can be fixed and guaranteed from commencement of the policy or they can be reviewed over time.

You might be able to take out a convertible term Family Income Benefit plan; it will cost you more but this option will mean you can extend the period that the policy covers.

Negative impact of FIB policies

An FIB is not an investment or savings product and there is no end gain if no claim is made before expiration.

It also offers a decreasing level of cover so in the event of the death of the policyholder a month prior to term end, the policy would only give a one month pay-out. If you compare this to a level term life insurance product, you can see the difference whereby the latter could still pay out the full, agreed lump sum.

Who is suitable for a Family Income Benefit plan?

It is more popular for those with young families because it can be more cost effective for offering essential life cover.

Key fact…

You could get your policy index linked in order to prevent devaluation with deflation. For example, your policy could be established to coincide with the completion of education for the youngest child when they are ready to support themselves.

Other options to consider when arranging Family Income Benefit:

Critical illness cover

Some providers will include critical illness cover for a higher premium with an FIB policy. Or this could be bought as a separate policy and offer better protection at better cost.

Joint Family Income Benefit plans

This type of policy offers both advantages and disadvantages, depending on your circumstances. If you arrange a joint policy, it could be easier and cheaper bit be aware it will only pay out once. Consider this carefully against the option of two individual policies, which could potentially offer a bigger pay-out to any dependants but either way, remember to factor in the effects of inflation..

Kevin Patterson