"Fib is really cost effective in comparison to a lump sum life assurance policy, and when adding in indexation you can offer future-proofed protection advice.
"I find that once a Fib policy is explained to parents, they see the true value of protecting an income for the financial support of their children should a parent pass away.”
Family solicitors often send clients to advisers for protection planning for maintenance payments, which is an important need that is often overlooked. A regular sum such as paid out by Fib can help with this need.
A client can also set up a trust to hold the assets on behalf of their children and distribute the cash according to their instructions.
And, like life insurance, an adviser can put a Fib policy into trust. While the ramifications of any Budget 2024 changes are yet to be ironed out, there are four main reasons why a client might want to put a Fib into trust.
John Charcol outlines them as:
- Avoiding probate: policies placed in trust are paid out directly to the beneficiaries without going through the probate process, ensuring quicker access to funds when they are most needed.
- Inheritance tax efficiency: the proceeds of the policy held in trust are not considered part of your estate, which can help reduce the amount of IHT that may be due.
- Control over distribution: you can specify how and when the policy benefits are distributed, ensuring they are used according to your wishes.
- Financial security: trusts provide a secure way to manage and distribute funds, protecting them from potential misuse or financial mismanagement.
Jennifer Gilchrist, proposition specialist for Royal London, says: "Fib is generally under-used, accounting for only a fraction of total protection sales, yet it can be more flexible than policies that pay out a lump sum and gives advisers the opportunity to add significant value.
"It’s an option that widens the accessibility of insurance and could be suitable for low-income families' budgets.”
Points to ponder
But while there are clear advantages for some clients, there are drawbacks, of course, to Fib.
The biggest one is that clients need to understand the amount their dependants can claim back will decrease over time. Because of this, it can be cheaper than life insurance, because it means the beneficiaries may get far less than they may have been expecting.
This might sound obvious, but as national insurance broker Lifesearch explains the full benefit of Fib is only really experienced if the policyholder dies early on in the term.
For example, Lifesearch says: "If you choose a 23-year term and passed away a month into this term, the payments would begin from the date of death through to the end of the term.
"If you passed away 20 years into the term, the payments would again begin from the date of death but only pay out for two years, as this is what is left of the term."
Therefore although Fib can often work out cheaper than life insurance, some clients might prefer to take out a life insurance policy because they will have more certainty over the amount that would be paid out on the death of a policyholder.
