They certainly wouldn’t find it for sale amongst the supermarket leaflets or online, but it can provide valuable cover for clients wanting a cost effective way to safeguard their family’s financial future. It can also be more flexible than policies that pay out a lump sum.
Here are three reasons why it is worth recommending family income benefit to clients:
1) Value for money. FIB is about the best value protection product available. A 35-year-old man who is a non-smoker could add enough family income benefit to create an income of *£1,250 each month with a term of 20 years for just £12 a month on top of the cost of his mortgage cover.
It’s not a huge monthly premium but it could be the difference between keeping the family home and having to sell up and downsize.
2) Tax-free income. Smaller regular payments mean that there’s no worry about having to make the complex investment decisions that come with having a lump sum payout.
One good way to illustrate the benefits of having an income rather than a lump sum is to associate it with other costs such as nursery fees, keeping the car on the road and food costs.
Most people will have enough life cover to pay off the mortgage but that doesn’t take into account other expenses that still need to be paid for.
3) It can be used as part of a divorce settlement. In the event of the death or critical illness of divorced parents it can be used to cover monthly maintenance payments. This will give the remaining parent peace of mind that the payments will continue to be paid.
Many people are not even aware that this kind of cover exists, so it is important for advisers to include it in discussions with clients, so they are at least aware of the option.
It could provide the perfect solution for young families on a budget. It won’t cost much more to add it to a mortgage protection plan and means that clients are protecting their everyday living expenses as well as their mortgage. Writing the policy in trust should also be considered so that the proceeds avoid inheritance tax and are paid straight to dependents quickly.
Ian Smart is head of product development and technical support at Bright Grey
*Quote based on 35 year old male, non-smoker, 20 year term, guaranteed rate – Bright Grey, August 2013
