Should we take out family income benefit insurance?
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My husband and I are in our late thirties and have a young family. We have a protection plan on our mortgage to make sure that it would be paid off if anything happened to either of us, but we don’t have any other life insurance. We were wondering whether to take out insurance just on my husband, who is the major wage-earner, as I only work part-time. Or do you think we should cover both of us?
Matthew Hinchliffe of Smith & Pinching responds:
The key question to ask yourselves is whether you would need financial help if either one of you were to die unexpectedly. I suspect the answer for most couples with young families is yes, as you might need to fund childcare, school fees and university fees on top of your usual expenditure.
Life insurance comes in two principal types: whole of life or fixed term. Whole of life cover will pay out eventually, whenever you die (provided you have paid the appropriate premiums). Fixed term insurance will only pay out if you die within the agreed term of the policy.
For couples, cover can be taken out separately on each of your lives or as a joint policy. Joint policies can be set up to pay out when either the first or the second partner dies, depending on when you feel you might need additional funds. If it is set up to pay on the first death, a further policy may then be needed to cover the life of the surviving partner. Separate policies have the potential advantage of paying out twice but are likely to be more expensive overall.
There may be a number of additional benefits offered by the life insurance provider such as legal and medical helplines.
Most life insurance policies pay out a lump sum in the event of the death of the policyholder during the insured period. However, there is another form of life cover that might be of interest, perhaps as an addition to traditional life insurance. Family income benefit, also known as family life insurance, pays out in the form of an income rather than a lump sum. In setting up the policy, you specify what income should be provided and for how long from the start of the policy.
There are other types of insurance that you might want to consider to secure your family’s finances, such as those that provide an income or lump sum if either you or your husband were to be too ill to work. I recommend you have a full protection review with an Independent Financial Adviser to work out which types of policy would be best suited to you and your family.
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