How should families protect themselves under the new Bereavement Benefits system?
Existing ones will carry on under the previous regime. Under the old system there were three benefits. These are now combined into one “bereavement support payment”.
First there was a lump sum of £2,000 provided that you were under pension age and your spouse, or civil partner, had paid NI contributions on earnings equal to 25 times the lower earnings limit in any one year.
Although if they died as a result of an industrial accident then that was not required. Under the new system a family without children will get £2,500 and one with children will get £3,500.
This is a significant improvement although it is still below the cost of many funerals. And of course, it does not contribute towards any debts, such as paying off a mortgage. Life and critical illness insurance remains essential cover for such circumstances. It may however reduce the amount of basic cover needed under low-cost funeral plans.
Second there was bereavement allowance for those with no children. It was only payable if you were 45 years old, or older and was payable for 52 weeks.
The amount you got was dependent on the amount your partner had paid into the state pension and also on your age. It was taxable and offset against any contributory benefits you might be entitled to, for example contributory based JSA. At 45 you could get up to £33.77 a week but you would then have your JSA reduced by that amount.
Under the new system you would get £100 per month payable for 18 months and it is not taxable or offset against contributory benefits. So overall, another improvement on the current situation.
Finally we move to the sting in the tail, widowed parents allowance (for those with children).
This was payable if you had dependent children or your partner was pregnant until children ceased to be dependent. The amount was based on your partner’s contributions to the state pension up to an amount of £112.55 a week. It was taxable but you would be entitled to child tax credits.
As with bereavement allowance it would be offset against other contributory benefits. Under the new system, it is £350 per month and is payable in full if your partner has paid NI contributions for a full year. It is not taxed and not offset against other benefits. However it is only payable for 18 months. For families with children this is a very significant reduction in state support.
So what should families do to protect themselves under the new arrangements? The solution is family income benefit insurance.
This insurance currently has a tiny market. It pays out for the term of the policy based on the income of the deceased partner. For two income households it is essential to purchase a policy that covers each life individually.
The interactions with universal credit mean that, assuming the surviving partner continues to work, such a family will have little or no entitlement to benefit after the 18 month period.
I think the changes offer an opportunity for increased sales and innovation in the family income benefit market.
The abolition of support for families after 18 months means that serious consideration should be given to making FIB a rider to life/CI insurance sold as a standard part of protecting your family, rather than as a stand- alone niche product. Costs should also be low.
Even as a stand-alone product is it usually cheaper than term life.
Written by Richard Walsh, SAMI Fellow and first published in Cover magazine, January 2017.
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