Financial protection, is Family Income Benefit the answer?
A family income benefit (FIB) is a product that lacks visibility in the retail client space and is one of the most underutilised and cost-effective financial protection policies available on the market.
How it works?
This is a policy, which is established over a fixed term and will ‘replace’ the income of a partner, should there be a premature death of an earner in the family. It is predominantly set up for young families and the term is typically set until we expect all children to become financially independent around age 21.
It ensures financial continuity and helps protects your family’s quality of life during financial dependency.
Case study
Mathew (32 years old) is married to Beth (30 years old). They have two young children, ages one and three. Matthew earns £55,000 per yearand Beth earns £35,000 per year. They are both non-smokers and have no health issues.
For their peace of mind, they want to ensure, the family’s lifestyle is protected while the children are financially dependent.
Following the research process, family income benefit cover can be secured at a cost of £18.69 per month and £11.48 per month respectively for a term of 20 years which is well within their affordability.
Five years later, Matthew now aged 37 passes away unexpectedly. This has huge emotional repercussions, but their gross household income has also dropped by c.61% overnight.
Matthew however protected his income of £55,000 through implementing a FIB and as we are only five years into a 20-year term, this policy will pay £55,000 of income each year to Beth for the next 15 years. This will be paid in monthly instalments and will be paid tax free.
By the end of the remaining term of the policy, this will be a total benefit of £825,000 paid tax free to help secure the family’s financial position whilst the children are still financially dependent. It ensured that during a terrible, unpredictable event, money was not a concern.
This cost £30.17 a month for the family and was ultimately a lifeline during an awful life event.
Financial protection is the base line for any financial plan. Without the correct protection in place, you are open to risk which your plan may not be able to withstand over the longer term.
If you have financial dependants, you have more risk and complexity in your plan, and it is so important to understand the ways you can mitigate this risk.
If you would like to know more about financial protection, please explore our insights below or contact us to understand your options today.
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DisclaimerCrowe Financial Planning UK Limited is authorised and regulated by the Financial Conduct Authority (FCA) to provide independent financial advice (FRN 185323). This insight is approved for use by Crowe Financial Planning UK Limited on the date issued. The information on this page is for information purposes only, based on our understanding of legislation and market practice at the time of writing. It does not constitute financial, legal or tax advice, and appropriate professional advice should be sought before any course of action is pursued. Where professional financial advice is sought, fees will apply and will vary depending on the complexity of the individual case. Any advice will be based on personal circumstances, and as with all financial planning, outcomes will depend on a range of factors that cannot always be predicted or guaranteed. The value of investments can go down as well as up and is not guaranteed; investors may not get back the amount originally invested. Past performance is not a guide to future performance. Tax treatment depends on individual circumstances and is subject to change. The FCA does not regulate Trusts, Tax or Estate Planning. The division of pension assets on divorce involves both financial and legal considerations, independent legal advice should be sought alongside any financial planning guidance. Please be aware that clicking links to third-party websites will take you away from the Crowe Financial Planning website. We are not responsible for the accuracy of information contained within linked sites. |
