Family Income Benefit (FIB) Insurance is a type of life insurance policy designed to provide regular income to your family if you pass away during the policy term. Unlike traditional life insurance that pays out a lump sum, FIB pays a tax-free monthly income to your beneficiaries until the end of the policy term. Here’s a detailed look at Family Income Benefit Insurance:
Key Features
- Regular Income Payments:
- Instead of a lump sum, FIB provides regular payments (typically monthly) to the beneficiaries.
- These payments continue until the end of the policy term, providing a steady income stream.
- Policy Term:
- You choose the length of the policy term, usually based on how long you expect your family will need financial support (e.g., until your children are financially independent).
- Decreasing Benefit:
- The total amount paid out decreases over time. If the insured dies early in the term, the beneficiaries receive more payments. If the insured dies later in the term, fewer payments are made.
- Tax-Free Payments:
- The income received by beneficiaries is typically tax-free, providing additional financial security.
Benefits
- Financial Stability:
- Provides regular income to help cover ongoing living expenses, such as mortgage payments, household bills, and education costs.
- Affordability:
- Generally, FIB policies are more affordable than whole life policies or large lump sum term policies, making them an attractive option for families on a budget.
- Peace of Mind:
- Ensures that your family has a steady income to maintain their standard of living if you are no longer around to provide for them.
Considerations
- Term Length:
- It’s important to choose a term that aligns with your financial obligations, such as the age when your children will become financially independent or when your mortgage will be paid off.
- Amount of Coverage:
- Calculate the monthly income your family would need to maintain their current lifestyle and ensure the policy provides adequate coverage.
- Inflation:
- Consider whether the policy should include an option to increase the income payments in line with inflation to maintain their value over time.
- Additional Riders:
- Some policies offer additional riders, such as critical illness coverage, which can provide extra protection.
How It Works
- Policy Setup:
- You decide on the term length and the amount of monthly income your family will need. The insurer then calculates your premium based on these factors, your age, health, and other risk factors.
- Regular Premiums:
- You pay regular premiums (monthly or annually) to keep the policy active.
- Claim:
- If you pass away during the policy term, your beneficiaries start receiving the agreed monthly income until the end of the policy term.
Example Scenario
Suppose you take out a Family Income Benefit policy for a term of 20 years with a monthly benefit of $2,000. If you die 5 years into the term, your beneficiaries would receive $2,000 per month for the remaining 15 years. If you die 15 years into the term, they would receive $2,000 per month for the remaining 5 years.