Family Income Benefit
Family income benefit life insurance pays out a tax-free guaranteed regular income, usually on a monthly basis in the event of the your death. It provides, for surprisingly low cost, a guaranteed regular income for your family. It is ideal if you wish to provide for an income until a certain point; for example, until your children are financially independent.
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The income starts the month after your death and is normally payable monthly thereafter for the remaining period of the term. (For example, if your policy had a 20 year term, and you died after 3 years, the regular tax-free payment will be paid out for 17 years.)
The cover will end on a specified date, which will be detailed in the policy document. There will be no cash return, except in the event of a claim within the term of the cover.
Indexed income
You can choose to have the income indexed-linked. Unless there is a specific need for a level income, the option of an indexed benefit should always be taken, in order to provide your family with protection against inflation reducing the 'purchasing power' of the income payments.
BEWARE: A 'family income benefit' life policy is designed to pay out a tax-free income, usually index-linked, in the event of the death of the insured person. It is common for the insurance company to offer a 'commutation lump-sum' under which the beneficiary of the policy can choose to exchange the guaranteed income for a lump-sum payment. In the event of a death claim, it may be very tempting to the surviving family to take the lump sum offered, however, we recommend that you think very carefully indeed, before accepting any such commutation offer and thereby giving-up the guaranteed tax-free income for a lump-sum. |
