Candidates and cost of family income benefit

He says: “Family income benefit is one of those products which just doesn’t get enough air time in financial planning.

“If the worst happens and a parent dies, the last thing the remaining parent needs is to be worrying about how they will manage large sums of money to keep the family’s bills ticking over.

“FIB is just as effective as term assurance but provides some security to a family around meeting their regular bills so they can concentrate on the emotional impact that the loss of a loved one has.”

Given the increase in the number of families who rent, Emma Thomson, life office relationship director at Lifesearch, says this cover is particularly useful for covering rental payments.

She says it is also good for families with little previous experience of investing large sums of money and where there might be a risk of the money running out before the children have grown up.

Ms Thomson says: “It can be daunting to be given just one large lump sum after making a claim.

“How will your family best invest the money and will they get a good return given interest rates are so low? Will the money last until the children are financially independent?

“If you don’t want the family to have to worry about investing, or are simply concerned the money could be blown too soon, then family income benefit should be considered.”

It could also be useful for divorced couples with children who want to provide a regular income to their former spouse should they die while their children are school age.

But Jennifer Gilchrist, senior product development manager with Bright Grey, says FIB is suitable for almost everyone.

She says: “Because it is usually cheaper, writing cover as a FIB policy is ideally suited to those on a budget.

“FIB also fits with life events, for example, when you buy a home and want to protect the monthly mortgage amounts or you may wish to cover your children’s school fees. It can be a good alternative for customers who would be uncomfortable dealing with a lump sum of money.

“Most of us are paid monthly and FIB is designed to mimic regular income. We are used to budgeting and paying bills and a FIB plan will help customers to ease into their new situation following death or illness.”

Martin Lockyer, managing partner of Westminster Wealth Management, says family income benefit tends to be slightly less expensive than lump sum life insurance but there is potentially a smaller payout.

Ian Barnes, head of product marketing at Legal and General Insurance, says the amount you pay each month, your premium, will depend on the terms of your individual plan.

Premiums

Premiums are based on your age, family history and other factors such as your health and whether you smoke, he points out. Mr Barnes says premiums are paid throughout the length of your policy and the plan must expire by the age of 70-years-old.

Emma Thomson, life office relationship director at LifeSearch, says family income benefit is cheaper than equivalent lump sum policies.

For example, Ms Thomson says a 30-year old non-smoker on £20,000 a year wanting cover for 25 years and who simply wishes to ensure his family can maintain the same standard of living, could arrange a policy that would pay out £20,000 a year for £12.45 with Legal and General.

That could pay out £500,000 if he passed away in the first year. Ms Thomson says the cheapest equivalent of £500,000 of term cover would be £20.14 a month with Aegon.

If he wanted to match the £12.45 cost but have a lump sum payment instead, Ms Thomson says Legal and General is the cheapest, yet would offer a benefit of only £279,000.

The family may miss out on a lump sum ‘windfall’ with family income benefit, Ms Thompson adds, but that windfall might not last long enough and could leave your family struggling to pay the bills after a few years.

Ms Thomson says: “If you just want to ensure your family can maintain the standard of living they are used to, then family income benefit is a great option to provide that peace of mind.”

But Alan Lakey, partner in Hertfordshire-based Highclere Financial Services, says what is key when it comes to considering the cost of this type of policy is assessing value for money.

For £20 a month, Mr Lakey says a non-smoking male aged 35-years-old could provide £34,900 a year over a 20-year term - £698,000 of protection at outset.

By contrast, Mr Lakey says a level term assurance would provide a non-decreasing capital sum of £392,000.

Mr Lakey says: “It is such great value for money that it is astonishing that so few consumers have it or have even heard of it.”