A type of insurance called family income benefit (FIB) can help to provide a regular income for your dependents
Most families, couples or co-habitants rely on at least one regular monthly salary to cover regular household spending. How would your household replace this if one partner died?
For peace of mind, many people choose a type of family life insurance called family income benefit (FIB).
What is family income benefit?
This type of family life insurance is one of a set of policy types known as term life insurance. A FIB policy runs for a set time known as the term. If you die within this period, it pays out a regular tax-free income until the term ends.
How it works
The regular payout from a FIB policy lasts only as long as the policy runs. Once the term ends, cover and any payments cease. So if you take out a 20-year policy and die five years into it, your family will receive regular income for the remaining 15 years. If you were to die 16 years into the policy, it will pay out for the remaining four years.
This is different from other term life insurance policies, which give a lump sum if you die within the term. One of the most common is level term life insurance, where a lump sum is paid on death. This amount is the same whether death comes at the beginning or end of the policy. There are also some life insurance policies that run indefinitely, called whole-of-life policies, so that a guaranteed sum is paid when death occurs.
Why you might want it
Household bills will always need to be paid. A sudden loss of income can make it tough to manage these and other expenses and this is where FIB can help to provide extra support.
If you have a young family, you might want cover to run until your children are grown up, using the income for everyday expenses or specific items such as school or university fees.
How much cover?
To decide how much cover you want, work out how much your family is likely to need every month. It’s a good idea to factor in inflation (the rise in the cost of living) when doing your calculations as this can impact the amount you’ll need in the future.
FIB premiums are based on the amount of cover and how long you want it, health, lifestyle (such as whether you smoke) and age. You can typically choose a level income or pay more for it to rise by a set amount each year, but for this you usually need to seek professional financial advice.
Waiver of premium cover is usually available. This ensures premiums are met if you fall ill and cannot work. Some policies offer a critical-illness option, which pays out if you develop a serious illness such as cancer. However, all these extras add to the cost.
When FIB isn’t suitable
This type of policy shouldn’t be used to cover a mortgage or other debts – insurance that provides a lump sum is usually more appropriate for that. This is to meet the continuing cost of living. There is more on these types of insurance – and it makes sense to look at all the different types of insurance available to you before deciding which might best meet your needs.