Family Income Benefit Insurance Explained

Posted by Rebekkah On February - 19 - 2013 0 Comment

Often times we are worried about what will happen to our loved ones if we die prematurely.  To ease your troubled mind, you’ll be happy to know that there is an insurance policy available for exactly this situation.  Family Income Benefit Insurance enables a person to protect his/her family from any future financial hardship by paying monthly income, should the policyholder die or be diagnosed with a terminal illness.

Many people are eager to know what family income benefit insurance is all about.  So we are here to explain.

What is Family Income Benefit Insurance?

FIB is a kind of insurance that offers a monthly income when the policyholder dies and policy is in force.  The monthly income would be paid on the basis of the terms specified in the policy, until the policy reaches its termination date.  The monthly payment can either be index linked or flat rate. However, if the policyholder is alive until the termination date of the policy, then he/she will not be entitled to any policy benefits.

The policies of this kind of insurance can be held by one policyholder, which is known as single policy or can be held by two policyholders, known as a joint policy. In the case of joint policy, the policy will commence paying out monthly income at the death of either policyholder. However, if both the policy holders die by the termination date of the policy, the payment will still be given only once in a month.

Difference Between FIB and Traditional Life Insurance:

You may not be aware of the fact that there is a thin line between FIB and traditional life insurance. While a life insurance policy tends to pay out the policy amount at lump sum, family income benefit policy tends to pay out the amount on monthly basis. On the other hand, FIB is cheaper in comparison to traditional life insurance. The former is also more useful in paying a regular supply of tax-free payments to meet the financial needs of the policyholder’s family.

How does it work?

This is best illustrated with an example.  If a person has a 20-year policy and dies five years into the policy, then the beneficiaries will receive the benefit of monthly payments for the net 15 years. However, on the other hand, if lives through the first 15 years of the policy, then the beneficiaries will be entitled to the benefit for only the next 5 years.

Cost involved:

The premium of this kind of insurance depends on three important factors: 1) the amount of coverage, 2) the policy term (how long the policy is in effect), and 3) whether the policy is written for health, lifestyle, age, or a combination of these. As discussed earlier, policies can often be bought on a joint basis which means that the monthly income will be paid out once any one of the policyholders dies. This is potentially a better value as you would be getting double the payout if both the policyholders die into the policy.

Additional Features:

This type of insurance is designed in a way that you can use it within divorce settlements. Should anything happen to you, FIB will still ensure that monthly payments are made to your children for covering their financial needs.

Hence, this can be concluded that FIB is a great insurance type that can protect your family from economic downturn by paying monthly payments until the termination date.

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