The most cost-effective form of family protection
- The lowest cost method of buying Life Insurance
- It pays out a Tax Free Income
- It avoids Investment fees and charges and tax
- It's ideal for young families
- And for those who need more cover than they can afford right now
While its name sounds dull indeed, Family Income Benefit (FIB) is one of the most useful and best value protection products you can buy. Rather than providing a lump sum should you die it provides a regular, tax-free, monthly income for your dependants - from the time of the claim to the end of the plan term.
Family income benefit is particularly attractive to those who like to know they have a regular monthly income and would rather not have to worry about complex investment decisions to make the most of a lump sum payout. The advantages of this to someone living off the payout – perhaps a young widow or widower – are very significant as were they to invest a normal lump sum they would have to pay fees, commissions and tax and in 2010 would be lucky to see a net return of 3% a year. That is just £3000 of income for every £100,000 of insurance paid out on a death. Few people can afford enough lump sum cover to properly provide for their dependents income needs, particularly when young children hamper earnings levels and increase the amounts protection it would be sensible to have in place.
The structure of the plan means that the total amount that could be paid out decreases each month, as the payments are only made until the end of the policy. But it is also fair to say that most families need for cover reduces to just about zero over a period of (many) years.
An example and some guidance
A FIB Plan is set up for years to pay £24,000 a year. If a claim is made after one year, £24,000 x 19 years, or £454,000 would be paid. But if a claim is made after 16 years, £24,000 x 4 years, or £96,000 would be paid. This is why family income benefit often costs less than life insurance, but a family with a new born could well need all of that £454,000, but the same family with a 16 year old might well find the £96,000 enough. It is thought most young IFAs buy FIB because they can see the cost/benefit fit suits better than expensive lump sum insurance.