Most people have some kind of life assurance policy to protect their family from losing their home. But what about replacing your income in the event of your death? What kind of life would your family lead after you were gone?
You have probably already bought mortgage protection insurance, a policy that will pay off your mortgage in the event of your death before the end of the mortgage, meaning that your family will be able to stay in their own home. Or you may have a separate life assurance policy that pays out a lump sum if you die within the next 20 years for example. (If you have neither, you should consider doing so immediately).
But what about all the other monthly commitments your family has? Mortgage protection insurance is designed to pay off just your mortgage and no more. Your separate life assurance will pay a lump sum to your dependents but, once it’s been used to pay off the mortgage, can you be sure that the remainder can generate enough income for your family to live on after you’ve gone? For example, if your mortgage is £150,000, then a £200,000 lump sum from a life assurance policy will result in £50,000 to invest, once the mortgage has been paid off. At current interest rates on deposit accounts, that £50,000 is unlikely to generate more than £1,000 a year before tax. (2% Gross AER).
Life needs living and bills still need paying. Family Income Benefit picks up those monthly costs if you’re not there to cover them. With policies starting from £10 a month it’s often the most cost-effective cover to buy and can run until you are 80 if need be.
Family Income Benefit can replace your income if you die… and is very inexpensive.
Say you take home £2,500 a month after tax and want to make sure that your family will get that income for the next 20 years. If you take out a family income benefit policy and die two years later, your family would get £2,500 a month for the remaining 18 years covered (a total of £540,000). Or if you die after 19 years, your family will get £2,500 a month for that last year (a total of £30,000). Either way, your family’s income is safeguarded for the full 20 years.
Depending on your family’s lifestyle, this can cover food, light, heating, clothing, travel and even holidays: things that would be very difficult to afford if you were to die without Family Income Benefit or a similar income protection policy.
It pays to consult a specialist protection insurance adviser like Marchwood IFA to find out whether you and your family are protected from life’s unexpected events. If you’d like to talk through your current protection needs, please contact us on 01243 532635