Family income benefit (FIB) isn’t, as the name suggests, a social security hand out.
This often overlooked product can in fact provide valuable cover for clients looking for a cost effective way to safeguard their family’s financial future. It’s a policy that pays out an income on death to dependants. Critical illness cover can also be added to the policy to ensure a regular income is paid in the event that the policyholder suffers a critical illness and is unable to work.
So why should you recommend FIB to clients? Well, it’s about the best value protection product available and can be more flexible than policies that pay out a lump sum. Most people will have enough life cover to pay off the mortgage but that doesn’t take into account all the other expenses that still need to be paid for. FIB provides a regular tax free monthly income, which will allow your client to pay for everyday bills and expenses. People are often put off buying critical illness cover due to its cost so family income benefit with critical illness cover can be quite attractive. Everyone wants value for money these days so this option could provide the perfect solution for young families on a budget.
It can also be used as part of a divorce settlement. For example, in the event of the death or critical illness of one of the parents it can be used to cover monthly maintenance payments. The emotional and financial impact of divorce is distressing enough but when there are children involved the financial implications can be a lot worse. If the parent who is making the maintenance payments dies or suffers a critical illness how will those payments continue to be paid? Let’s face it, without a financial safety net in place, they won’t. But with some forward planning and taking some sound advice from an adviser a strategy can be put in place to cope with such eventualities.
So FIB is cost effective and it’s flexible. Why then are sales so low, currently accounting for only about 5% of protection sales? Firstly, people might not be aware that it exists. The public’s perception and knowledge of protection products isn’t great at the best of times. Add in a product called family income benefit and without professional advice, they could be forgiven for thinking it’s a State benefit. And if they decide to buy direct from a supermarket or online it’s unlikely it will appear as an option.
As FIB pays out smaller, regular payments, this may not be as appealing to some people as receiving a large lump sum. Despite the premiums being lower than lump sum term assurance people may reject the idea of monthly payments. One good way to illustrate the benefits to clients of having an income rather than a lump sum payment is to associate it with other costs such as mortgage repayments or school fees. As with all decreasing benefits the amount that can be claimed reduces over time. But that of course is the reason why premiums for FIB are so much cheaper.
In the current economic climate with the rising cost of living, family income benefit becomes more attractive from a cost point of view and it shouldn’t be overlooked when discussing all the options with clients. It’s a cheap way of setting up cover. It won’t cost very much more to add it to a mortgage protection plan and will mean that your clients aren’t just protecting their mortgage but their everyday living expenses too.
