Why is Family Income Benefit Cheaper than Life Insurance?
Generally, life insurance begins at the start of the policy and takes effect immediately. This means that the lump sum insured for is payable should you pass away straight after taking out the insurance, or in many years time. The value payable will not change no matter when a claim is made, provided the policy remains active.
Family income benefit is different because the monthly pay outs will be much smaller than one lump sum. Usually, these have date parameters around them so, for example, if you have a 20-year policy that pays out a monthly benefit every month, and you were to die within the first year of that policy, your recipient would receive the monthly benefit for the next 19 years.
However, if you were to die 15 years after taking out the policy, your recipients would receive the same monthly benefit, but only for the remaining five years left on the policy.
This means that the total pay outs for family income benefit are lower for insurers, making this a less risky and more cost-effective choice.
What is Family Income Benefit Used for?
The most common reason for choosing this type of insurance is to cover the salary of the main income earner in a household, in the event of their death. Therefore, the insurance should cover a monthly pay out equivalent to your net monthly salary, to ensure that your family does not suffer financially should you pass away.
Many families find this a more viable way to control and manage their income, whereas a large lump sum payment can be stressful to manage and understand how to invest wisely to last for several years.
Which Insurance is Best for Homeowners?
Mortgages usually require a lump sum settlement if the property is sold, although may continue to be paid every month with a family income benefit entitlement.
However, many homeowners choose life insurance with the cover value equivalent to the value of the mortgage to ensure that their family can pay off their mortgage borrowing in its entirety.
If you are struggling to choose which insurance is the best cover for your family, give our friendly team a call and we will discuss the pros and cons with you!
