Tony from Eye asks: "My financial adviser at my bank has told me that I need life insurance. I do not currently have much disposable income, so he has suggested a Family Income Benefit life insurance policy as he says the cost of the premiums will be lower than a standard term policy. How does this type of policy differ from a normal life insurance policy?"
A Family Income Benefit policy is a type of term life assurance plan which pays out a regular 'income' instead of a large one-off lump sum.
As each year passes, the total sum assured that would be paid on death decreases slightly.
For example, with a sum assured of £10,000 per annum over a 10-year term, if you died shortly after taking out the policy, it would pay out £10,000 per annum (usually paid
monthly as an income' hence the name family income benefit), to your wife for the next 10 years.
In other words, she would receive £100,000 over spread over 10 years.
If you died in year six, the policy would pay out £10,000 per annum for the remaining four years of the policy term and so on for the remainder of the term.
As the insurance company would not need to pay out so much money in the later years as in the early years, the cost of these policies is less than a level term policy where the large sum assured stays the same throughout the whole term.
In reality, most insurance companies offer the beneficiary a choice of taking the income monthly for the remainder of the term or taking one slightly reduced lump sum up front, in the event of a claim being made on the policy.
It sounds as though your financial adviser at the bank has given you good advice.
However, you might still want to check with an independent financial adviser (IFA) before you sign on the dotted line, as a life insurance policy offered by your bank may not be the most competitively priced.
An IFA will do the shopping around for you to make sure your get the best possible terms.
Contacting NickNick Plumb is an independent financial adviser. Send your questions to Nick at Bright Financial Planning, 58 Station Road, Sudbury, Suffolk, CO10 2SP, email them to
nickplumb@aol.com or telephone Nick on 01449 675674.
Nick's answers to reader questions in this column are provided only as a general guide and do not constitute personal financial advice. For any readers requiring specific advice on their own circumstances, Nick is happy to offer a complimentary initial meeting.
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