Job worries bring back family income policies allay job worries

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The Independent Online
AS FINANCIAL security becomes a growing concern, Family Income Benefit policies (FIBs) could provide the solution - particularly for couples starting a family.

This is especially true in the face of the Government's determination to make people more individually responsible for making ends meet.

FIBs are rarely heard of these days because they earn only a small amount of sales commission compared to endowments and other forms of life and protection assurance. But with money scarce in most families, the FIB is making a comeback.

FIBs offer cover over a fixed number of years. They are cheap and simple, and provide a good level of financial security for anyone on a tight budget.

Barry Edwards of the financial consultants Reeves Financial of Horsham, West Sussex, cites the example of "the bread-winner who decides that if he dies prematurely, his family comprising the mother and baby will need pounds 14,000 a year until the child finishes its education in some 20 years' time. He takes out an FIB and dies in the first year. The mother will receive pounds 14,000 a year, tax-free, paid in quarterly instalments for the next 20 years. If the father dies in, say, year five, the mother will receive pounds 14,000 a year for the next 15 years, and so on. However, if the father survives the period of the FIB policy, ie 20 years, the family receives nothing.

"If the father is a 24-year-old non-smoker, the cost of this Scottish Amicable FIB would be pounds 16.82 a month."

Mr Edwards explains that on death a lump sum may be negotiated, but "the danger that such a sum might be frittered away defeats the object of an FIB, and that is to guarantee a regular income to the family for whatever period the FIB provides cover."

An FIB can also be taken out on the life of the mother, so, for example, the cost of a nanny could be met after her death.

Before taking out an FIB, decide how much your family is likely to need each year after your demise, and for how long - or how much you can afford in premiums. If you feel the surviving parent can do a part-time job and only needs a top-up income, an FIB can be obtained for as little as pounds 12.50 a month, producing annual tax-free income of pounds 7,500 over 30 years.

Many companies, such as Norwich Union, write FIB policies with a minimum monthly premium of pounds 5, and for as short a period as one year.

It is this flexibility that makes an FIB so attractive, while the total cover is worth about double that of a term assurance policy for roughly the same level of monthly premium.

Finally, if you have a personal pension you can have your FIB policy written under pension term assurance rules, making premiums eligible for tax relief.