In our recent State of the Protection Nation research*, this was the top reason given by consumers for not owning life insurance (29%), critical illness (32%) or income protection (31%).
But protection doesn’t have to cost as much as they might think and there are a number of options available to keep the cost down. One of those options is family income benefit.
Family income benefit (FIB) is an inexpensive solution that helps take a load off the client’s mind that, should the worst happen, their family would have a financial coping strategy. Rather than paying out a lump sum on death, it pays out a regular tax-free income on death until the end of the term (some providers like Royal London also cover earlier diagnosis of a critical illness).
The total amount paid out by the policy depends on when the client dies. If they die in the early years of the policy, the total pay-out will be more than if they die nearer the end of the term of the policy. Because the total pay-out decreases over time, it’s cheaper than an equivalent single lump-sum life insurance policy which runs for the same period.
FIB is a cheap and easy way for a client to provide their family with an income rather than a lump sum if they die. It can be especially attractive for clients with young families as they might want cover to run until their children are grown up. This income could be used to meet everyday expenses or to pay for specific on-going expenses such as school or university fees. It’s not appropriate for covering a mortgage or other debts where a lump sum would be required.
Let’s take a look at an example based on the average monthly cost of running a home in the UK, which is £668**. For a non-smoking male aged 30 to protect this amount for 20 years with Royal London would only cost £6.35 a month (Life Cover only with a sum assured of £10,020 level annual income over a 20 year term). Quite a small price to pay for extra peace of mind!
For clients that have already protected their mortgage and are looking for additional cover, the fact that FIB pays out a regular income rather than a lump sum could also be attractive as it helps to sidestep the issue of where the money should be invested after a successful claim. Having to deal with a potentially large sum of money during an emotionally difficult time can be a challenge. And should the customer decide at point of claim that a lump sum would be more appropriate, FIB offers the option to commute the payments into a lump sum. So it’s a flexible solution too.
FIB can also be a good solution for single parents who are renting. If they were to die, it would provide the child’s guardian with a regular income to cover the day-to-day expenses such as food, clothes and school supplies. It’s also ideal for someone who has become a full time carer for their spouse or partner, as it could provide a regular income to pay for things such as nurse home visits and utility bills.
Our Personal Menu Plan allows clients to choose to have their cover paid out as a lump sum or regular income, so you can tailor it to suit their needs. You can find out more on our website . We’ve also got marketing material specifically aimed at families in our marketing studio that you can customise with your own logo and contact details.
*Royal London, State of the Protection Nation, March 2017
**More Than, ‘Cost of running a home’ report, 2016. (based on a mortgage holder excluding mortgage payments).
Senior Protection Marketing Manager
Ross joined Royal London in May 2014 as Senior Protection Marketing Manager bringing with him extensive experience in financial services having started his career in the industry back in 1998. He has held various marketing roles during this time and has experience working across a number of markets including savings and investments, individual pensions, workplace pensions, platforms and most recently protection. He has a keen interest in behavioural economics and how this can be applied practically to change consumer behaviour in financial planning.