- Do I need Family Income Benefit?
- Is the Family Income Benefit subject to tax?
- Should I write the policy into Trust?
- Are there any disadvantages?
Do I need Family Income Benefit?
If your partner or family couldn’t maintain their current standard of living or keep up with regular monthly commitments and outgoings if you were to die, then a Family Income Benefit could be a cost-effective and practical solution for you.
Family Income Benefit is frequently set up alongside Mortgage Life Insurance. The Life Insurance element is designed to clear the mortgage debt upon death whereas the Family Income Benefit is often used to provide a regular income to cover the family’s ongoing household bills.
When used in conjunction with other policies, such as Mortgage Life Insurance, this type of cover can provide a broad level of protection for your partner, your family and your loved ones after your death.
Family Income Benefit is particularly useful for single parents as it provides a regular income rather than a lump sum upon death that can be ‘drip-fed’ to the children via regular monthly payments.
It is also sensible to consider cover for a stay-home parent because of the disruption and cost involved in arranging childcare support should the surviving party need to return to work.
Family Income Benefit is designed to protect your family’s lifestyle and quality of life should you die during the term of your policy.
Is the Family Income Benefit subject to tax?
The regular income from a Family Income Benefit policy isn’t subject to income tax. However, if not set up properly, the plan could be subject to inheritance tax upon death, which is why recommend speaking to one of our experts to determine if it’s worthwhile placing the policy into trust.
Should I write the policy into Trust?
For inheritance tax purposes, HMRC will assess the value of your Family Income Benefit policy by totalling the value of the monthly benefit payments into one lump sum.
For example: if you were to specify a monthly Income Benefit of £1,500 a month, each month for a term of 20 years, this would total £360,000 for tax purposes over the total term of the policy.
(£1,500 x 12 = £18,000 x 20 years = £360,000).
When combined with the rest of your personal estate, this could potentially value your estate above the inheritance tax threshold and could have inheritance tax implications for your family.
By placing your policy into Trust, any benefit would not fall into the policyholder’s estate upon death and would therefore not be subjected to inheritance tax.
We recommend that you speak to one of our experts to discuss placing your policy into trust.
Are there any disadvantages?
Family Income Benefit is designed to provide a regular monthly income. It doesn’t provide large sums to meet any considerable liabilities should the policy holder pass away, so you should always consider whether you need a Life Insurance policy in conjunction with any Family Income Benefit.
Family Income Benefit only pays out an income for the time remaining on the policy term at the point when the policyholder dies. This means if you die in the 20th year of a 25-year policy, your family will only receive the income for the remaining 5 years of the policy term.