Protecting your family is a basic instinct. However, there are different options to choose from. In this article, we’ll talk through how level term insurance compares to family income benefit.
What is Level Term Insurance?
Level term insurance pays out a lump sum when the insured dies or is diagnosed with a terminal illness.
Regardless of when the insured dies, the insurance pays out the same amount. Whilst the size of cover and the length of the policy affects the cost of the insurance.
Level term policies can be used to cover interest-only mortgages because they’ll pay the same amount whenever they’re claimed during the period of cover. Whereas decreasing term cover is used for capital repayment mortgages as the outstanding capital reduces over the length of the mortgage.
What is Family Income Benefit?
Family income benefit pays out a tax-free monthly income when the insured dies or is diagnosed with a terminal illness.
As the policy provides a monthly income for the length of the policy, they’re suitable for people who need a regular income to cover family living costs if the person insured dies.
The cost of family income benefit will vary depending on the age, health and lifestyle of the person insured along with the income your family needs.
How Level Term Insurance Compares to Family Income Benefit
To decide which policy is most suitable for your family, look at your personal situation and ask yourself these questions:
Will you have ongoing household bills?
Family income benefit provides you with a regular monthly income which can help cover day to day living expenses. Whereas level term insurance is paid out in a single lump sum that you’ll need to manage.
Are you looking to pay off a mortgage in one go?
Level term insurance can give you enough to pay off a mortgage, whilst family income benefit will provide regular income which would not pay off a mortgage in one go.
Why do you need that level of cover?
With both policies remember to check how much cover you need. If you insure for more than is necessary, you’ll overpay on your insurance premiums.
Have you thought about the impact of inheritance tax?
Inheritance tax may be charged at 40% on either a lump sum payout or a regular income. To keep the proceeds out of your estate you would need to put them into a trust.
In addition, both types of policies can provide life cover only or critical illness can be added on the schemes.
Professional Advice on Protection
To protect your family it helps to get financial advice on your life insurance.
An advisor will talk through what type of cover your family would need if you or your spouse passed away – a regular monthly income or a one-off lump sum. As well as checking what level of cover you need.
You’ll also receive advice on the tax implications of a protection policy and the benefits of using a trust. With a trust you can avoid inheritance tax issues and ensure rapid payment rather than having to go through probate.
If you would like to speak to us about advice on protection or financial planning please email us [email protected].