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This type of benefit is also a form of term assurance which is intended to replace lost income in the event of death. However, rather than providing a capital sum, the aim is to provide an income on a monthly basis. The problem at outset is not knowing for how long income may have to be replaced. The differing scenarios in replacing a required income of £20,000 per annum, over a potential term of 20 years, could be explained as follows; Level term assurance Sum assured of £400,000 would be invested in an appropriate manner dependent on an individual’s tax position and attitude to risk at that time. A withdrawal of 5% (£20,000) per annum would then provide the required income. Subject to an investment return of at least 5% per annum, the original capital sum would remain. This would of course be affected if additional sums were withdrawn in the years ahead. Clearly this type of benefit can be seen as an advantage if a claim arose in the final years of the policy. Family Income Benefit Sum assured of £20,000 will be paid as an annual income on a monthly basis and is therefore the closest to replicating lost annual income. However, the benefit will only be paid for the remaining part of the term following any claim. In comparison with level term assurance therefore, a claim for Family Income benefit after 5 years of a 20 year term will result in a total benefit received of £300,000 and a claim after 18 years would result in a total benefit received of £40,000. With level term assurance the benefit would always be £300,000. Because of this, Family Income benefit is generally cheaper than Level Term. Both of course could be subject to indexation and it is recommended that this be included when looking to replace income that would be expected to keep pace with inflation.
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