Remember family income benefits

In the middle of the price war for life assurance, Roger Edwards of insurer Bright Grey would like to remind you about Family Income Benefits: “Family income benefit accounts for a mere 5% of all life assurance sales yet it can be more flexible than policies that pay out a lump sum.

 

“There seems to be no stopping the term assurance price war. Emails hit my home inbox on a daily basis from discount advisers promising me the cheapest rate if I take some life assurance out through them. Or they offer me a significant reduction in premium if I switch my existing cover across. Meanwhile, the supermarkets and other retailers run adverts which all seem to focus on the message that ‘cheapest is best’ such as ‘life assurance from 26p per day’.

 

“But there is one thing glaringly absent from the shelves of retailers and pretty much missing from the wares of the discounters as well: family income benefit (FIB).

 

“FIB is life insurance that pays out an income for the remainder of the policy term when a claim is made. So, for example, FIB could be taken out over a 25-year term to provide an income of £10,000 a year after the death of the life assured. That’s potentially a total income of £250,000 if a claim is made near the start of the policy. But because the total amount the insurer has to cover reduces as each year goes by without a claim, the total cost of FIB can be up to 60% less than that of £250,000 lump sum cover.

 

“FIB is about the best value for money you can get. But most life cover is still taken out as a lump sum, to match a mortgage perhaps. This is despite the fact that people generally need to protect more than their mortgage. They have regular outgoings that also need to be paid such as nursery fees, feeding the family, keeping the car on the road and, for those going through divorce, maintenance payments. All of these outgoings need to be covered too and it’s obvious that in many cases a source of income is needed.

 

“So why is it that sales of FIB are so low they account for only 5% of all life assurance sales? Well, first of all I think that those buying life assurance direct are probably not aware of the option. People are not going to find out about potential combinations of benefits from supermarkets. Most menu plans include income-based life cover, and even income-based critical illness cover. These can easily sit alongside lump sum covers in one plan with just one application form.

 

“Secondly, it could be that age-old choice between lump sums and income. To some, a cheque for £250,000 sounds impressive, while an income of £10,000 a year for 25 years might not sound quite as good, even though on day one the total potential payout is the same. The certainty of a lump sum under certain conditions is more attractive than an income.

 

“But the problem with the lump sum route is that you don’t know how big that lump sum is going to have to be in order to meet outgoings. How do you know when a claim is going to be made and how the markets are going to be performing at some point in the future? And realistically, the last thing the family left behind wants to worry about is how to invest for an adequate income.

 

“So the next time you’re looking at life cover, consider FIB.”