Simple and straightforwardguides to Life Insurance

Family Income Insurance vs Traditional Life Insurance

There are many life insurance options available today. Family Income Insurance is insurance, also referred to as Month Insurance that will pay out each month; so will provide an income for the beneficiary. A monthly insurance will be something like a family income benefit policy. This will pay out a regular income to the beneficiaries until the policy expires. This will often be used to provide the same income that the deceased would have been putting in to the family.

Traditional insurance will pay out a lump sum. This lump sum payout is the more popular type of insurance. Traditional insurance is term assurance. This will pay out if the insured dies within the term of the policy and the premiums will be the same for the time the insurance lasts. These are often used to cover an interest-only mortgage so the outstanding balance is paid if the mortgage holder dies. It can also be used to leave a sum of money to family members who can invest it to keep them financially secure.

Cost

The cost of the two types of policies is likely to be quite different. If you want to cover the £100,000 you owe on your mortgage for the 20-year term then you will pay a fixed amount each month and then if you die you will get a payment of £100,000. If you want your family to get a £2,000 sum of money each month and die within the first month of taking out the policy, then they will get £480,000 in all. If you do not die until just before the policy is due to expire then just £2,000 will be able to be claimed. This difference in the amount that is paid out will have an effect on the cost of the insurance. Family income benefit does tend to be the cheaper of the two, for this reason.

Pay Out

With a term insurance policy, you will receive a lump sum payment whenever the life assured dies. This means that whether they die the day the insurance is taken out or the day before the cover is about to expire, the same lump sum will be paid. With the family income benefit it will just pay out the agreed monthly amount for the remaining term of the policy. This means that the term assurance could potentially give better value for money, but only if the insured dies later in to the policy. For the first five years a family income benefit would give the best value for your money, but after five years it would be the term assurance that would give the best value for your money, based on the figures above (a twenty year policy comparing a £100,000 lump sum pay out with £2,000 a month).

Benefits

It is worth considering how the family would cope with each financial option. A lump sum could be great initially, but unless it was wisely invested and only spent slowly then it may not be good. Some people may decide to spend it all very quickly and then would have nothing left. If this is a risk, then a regular income could be a better option. It can very much depend on the individual family.

Other Cover

It is worth considering other insurance cover as well as income when making decisions about insurance. You need to consider whether it is necessary to have a lump sum, perhaps to pay off an outstanding debt, or whether a regular income to cover the cost of bills, would be better. It is also good to think about any other money that may be available and who is earning an income in the household that could contribute as well.

It can be difficult to decide between the different types of insurance, as there are so many to choose from. However, each family is different and their requirements are different and so it is important to consider each choice in light of your own personal circumstances.