How can Family Income Benefit insurance help provide for my family?
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I have a life insurance policy that will give my wife a lump sum if I were to die suddenly. Our mortgage is covered by another policy, but I am still concerned about her ability to meet all the bills while our children are growing up, without having to work full-time. If they go to university, it could be many years before they no longer need financial support. Am I right in thinking I can get a policy that gives her an income if I die?
Matthew Hinchliffe of Smith & Pinching responds:
There is a type of life insurance plan that can be used instead of – or alongside – a standard life insurance policy that will achieve what you describe. A Family Income Benefit policy is set up for a fixed period – so in your case you could have it apply to the years that your wife might expect to need additional income – and if you were to die during that period, it would pay a regular income to your wife, as the beneficiary, until the end of the policy term.
To take an example, if you were to set up the policy to run for 20 years and you then died in the fifth year, the policy would provide an income for the remaining 15 years of the term. However, if you were to die in the latter years of the policy, it will pay out for fewer years and so might seem to be less value for money.
As an alternative, you could perhaps take out a fixed term life insurance policy and any pay-out from the policy could be invested by your wife for potential growth or income. To help with the affordability of premiums, this can be done on a decreasing cover basis, if required, so that the amount paid to your wife on your death decreases as the years pass.
It’s a question of balancing the benefits provided by the different types of policy with the cost of premiums whilst taking into consideration the entire picture of your financial circumstances. I suggest you sit down with an independent financial adviser and look at all the different options before deciding which is the best solution for you.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk
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