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  • Writer's pictureGary Lumb

Life insurance vs family income benefit: Which one is right for your family?


Creating financial security for your family if the worst should happen can be difficult to contemplate. However, it’s something that can ensure the people most important to you are taken care of.


If you’ve yet to take out financial protection that would give your loved ones financial security if you passed away, there are two main options to consider: life insurance and family income benefit.


Both options can be valuable and whether they’re right for your family will depend on your circumstances.


Life insurance would pay out a lump sum


Assuming you keep up the premiums, life insurance will pay out a lump sum if you pass away during the term.


The money paid out is tax-free and can be used however your family wishes. The level of cover chosen is often linked to significant financial commitments, such as your mortgage. However, your family could also use the money to support day-to-day living costs.


It’s important to calculate the level of cover that would provide your family with financial security and understand how losing your income could affect outgoings.


Life insurance can provide your loved ones with security so they can grieve without having to worry about how they’re going to meet bills or other expenses. It can also help maintain their lifestyle, such as paying the school fees of your children.


Family income benefit would pay out a regular income


If you passed away during the term and had paid the premiums, family income benefit would provide your loved ones with a regular income until the end of the policy term.

You may choose to link the cover to milestones, for example, ensuring that family income benefit would continue to provide an income until all your children reached adulthood.


You should consider what expenses your income is used for when calculating the level of cover that’s right for your family. As well as the outgoings you already pay, would they change if you passed away? For example, would your family’s childcare costs rise?


As family income benefit provides a regular income, it can make it easier for the surviving partner to manage their budget. However, it may not provide as much flexibility as life insurance.


Should you have both life insurance and family income benefit?


Depending on your circumstances, it may make sense to take out both life insurance and family income benefit.


Your family could use the money paid out from a life insurance policy to pay one-off costs, such as a mortgage. The regular income provided through family income benefit could then be used to cover day-to-day costs. It can help your loved ones balance large and small expenses they may be responsible for.


Financial planning can help you choose the right financial protection for your family


Understanding which type of financial protection is right for you, and what cover your family needs can be difficult. We’re here to help you understand the options and “what if?” scenarios you may be worried about to create a plan that suits you.


If providing your loved ones with a way to pay off the mortgage is a priority, for instance, you may want to consider life insurance where the cover reduces over time. This would reflect your regular mortgage repayments and mean premiums may be lower.


As well as helping you understand what type and level of cover is right for your family, financial planning can be invaluable if the worst happens.


It could help your partner understand how to use the pay out from life insurance to create long-term financial security. Receiving a lump sum can be useful, but it can also be overwhelming. Working with a professional to understand the different options could help them balance short- and long-term goals.


It can also provide financial peace of mind and mean they’re able to focus on grieving, or supporting children.


Working together with a financial planner can help you and your family have confidence that you’re financially prepared for the future.


When creating a financial plan, there may be other steps you can take to build long-term security too, from adding more to your pension to building an education fund for your children.


Contact us to talk about financial protection


If you have questions about financial protection and other steps you can take to create long-term financial security, even when the unexpected happens, please contact us.


Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.


Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

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