The Importance of Family Income Benefit

The Importance of Family Income Benefit

We don’t like thinking about what would happen to our family if we pass away or become very ill, but it’s important to have a plan in place for if something were to happen to us. We can’t predict accidents or serious illnesses and they are something that could happen to any of us.

For the majority of family households, at least one salary is relied on to cover the bills, mortgage and everyday living costs.

If you have a family that is relying on your income to be able to afford the family home and the costs of living, then you can look after and protect them by having a family income benefit set up for them in case anything were to happen to you. It’s different from “income protection” which protects you if you’re unable to work due to illness or injury. Family income benefits pays beneficiaries after the insured person passes away or is diagnosed with a serious illness

I’m sure you will have heard of life insurance before, but family income benefit might be a new term. It’s very similar but instead of getting a lump sum like your family would with life insurance, family income benefit is paid out as a monthly or annual payment to make it easier to manage. A lump sum of money can be overwhelming and easily mismanaged. A monthly payment makes family budgeting much easier.

It can even be taken alongside a lump sum life insurance policy designed to pay off the mortgage which means the mortgage is covered as well as the family’s living costs.

When you set it up, you choose the period of time that the payments will be paid out over and your dependents will receive a tax-free monthly income. Choose a policy that rises with inflation to ensure that the cost of living will be covered over a longer period of time. This is an important consideration as living costs are always on the rise and you want to make sure your family can live comfortably. You can factor inflation into the annual payout amount that you decide on or link your policy to indexation which means that it’ll be increased automatically.

If you are a parent and have young children, it’s a good idea to choose the term to last until your children are financially independent but you could also choose to make it last until your mortgage is paid off, for example.

With this kind of arrangement, the risk to the insurer decreases each year that there isn’t a claim. So, if you have a 20-year term and claim 1 year in, the payments would start then and go on for 19 years. If you don’t claim until 18 years into the term, then the claim would start on the claim date but only continue for 2 years as that’s what’s left of the agreed term.

Of course, we all hope that our children and family will never have to be in this situation but it’s a good idea to have something in place to protect them in case anything were to happen.

Collaborative Article.