60-second summary
Want to know how family income benefit could protect your family? Here’s a brief overview:
Family income benefit (FIB) provides regular tax-free monthly payments to your family if you die within the policy term.
It is a type of 'decreasing term' policy. So, if you die towards the end of the policy term, your family will receive fewer monthly payments. If you outlive the policy term, your family won’t receive a payout.
Because of this, FIB is often cheaper than life insurance, which provides a lump-sum payout.
FIB can be particularly useful for families with young children. If the policyholder dies, the money could be used to help cover living expenses such as rent or mortgage repayments, household bills and childcare costs.
You can’t buy family income benefit through Compare the Market. But you can compare FIB plans with our expert partners at LifeSearch.
What is family income benefit?
Family income benefit (FIB) is a type of term life insurance policy. It’s designed to give your family regular financial support if you die or are diagnosed with a terminal illness.
Unlike standard life insurance, FIB pays out an ongoing monthly income, rather than a lump sum.
As a policyholder, you'll pay a monthly or annual premium, and cover will remain in place for a specified length of time. If you die during that time, your loved ones will recieve a tax-free income to help replace your lost earnings.
This monthly income could help your dependants stay on top of mortgage payments or rent, along with other household bills.
How does family income benefit life insurance work?
Family income benefit works on a decreasing term basis. This means that the payouts only last for the remainder of the policy term.
For example, if you took out a 20-year policy and died after five years, your provider would pay an income for the remaining 15 years. If, on the other hand, you died after 18 years, the payouts would only last for two years.
FIB works like this:
Choose your cover amount – calculate how much income your family would need if you were to die.
Choose how long you want cover for – this is known as the policy ‘term’. For example, you may want the policy to last until your children are financially independent.
Pay your premiums – your insurance provider will assess your premium based on the amount of cover and the policy length. You’ll pay your premiums monthly or annually until the end of the agreed policy term.
How FIB pays out – if you die during the length of the policy, your family will receive a monthly tax-free payment until the end of the policy term.
If you outlive the policy term – your family won’t receive a payout, and you won’t get your money back.
Who is family income benefit for?
Family income benefit could be suitable for anyone with financial dependants who rely on their income. FIB could be useful for:
Parents – particularly families with young children where one parent is the primary earner. The money could be used to cover rent or mortgage payments, household bills, education costs or childcare.
Couples – FIB isn’t just for families with children. If you were to die, your partner or spouse might not be able to cover the household bills alone. With the help of family income benefit, they could continue living in the home you shared together.
Carers – if you have an elderly or disabled relative who is dependent on you, the monthly income could continue to fund home care or other care costs.
Who isn’t family income benefit suitable for?
If you’re looking for a life insurance policy that pays out a considerable amount of money in one go, family income benefit may not be for you.
If want your family to receive a sizeable lump sum so they can pay off the mortgage and clear other debts, it may be worth considering a term life insurance or whole of life insurance policy instead. But remember that the premiums are likely to be higher.
What should I consider before taking out family income benefit insurance?
Before you take out family income benefit insurance, you’ll need to think about:
How much income your dependants will need – think about possible future family living costs as well as your current outgoings.
How long you want the cover to last – often, people who take out family income benefit choose the policy term to run until their children are financially independent.
Frequency of payouts – you’ll need to decide whether you’d like your family to receive a regular monthly income, or if you’d rather they have a lump sum payment.
How much will family protection insurance cost?
Family income benefit, or family protection insurance, is generally considered the most affordable type of life insurance available. That’s because the risk to the insurance provider reduces each year and payouts are typically lower than standard life insurance.
As with all life insurance, your monthly premiums will depend on factors including:
Your age – the younger you are, the cheaper family benefit insurance will be, as you’re usually considered less of a risk to the insurance provider.
The income you want paid – the larger the cover amount you choose, the higher your premiums will be.
Smoking and medical history – certain pre-existing health conditions could mean you pay more for your premiums. This is because insurance providers may consider you a higher risk when it comes to making a claim.
Many family income benefit plans give you the option to include critical illness cover. This means the policy will pay out if you’re diagnosed with a serious illness listed on the policy. If you add this, your premium will be higher.
Can I get a joint family income benefit policy?
Yes, you can get a joint policy with your partner. However, as with joint life insurance, it'll only pay out once – usually after the first policyholder dies.
The surviving partner is then left without cover, so will have to rely on other life insurance policies or take out a new family income benefit policy.
A joint policy may work out cheaper than individual cover for both partners. But the benefit of separate policies is that each provides an income if both policyholders die during the policy term.
Alternatives and additions to family income benefit
Family income benefit isn’t your only option. It can often be bought alongside a lump sum policy. For example, you could buy FIB together with decreasing term life insurance, which is designed to pay off a mortgage.
It’s also worth thinking about:
Critical illness cover – pays out if you’re diagnosed with a serious illness listed on the policy.
Income protection insurance – pays out if you can no longer work due to illness or injury.
Death in service benefit – you may be offered this cover through your workplace. You might also be offered family protection. But if you lose or leave your job, the cover will end at the same time as your employment.
Where can I buy family income benefit?
You can’t compare family income benefit with Compare the Market. However, our partner LifeSearch, a specialist adviser for life insurance, will be able to help you.
Give the friendly team a call on 0800 072 1147 (Monday to Friday, 8am-8pm; Saturday, 9am-2pm; Sunday, 10am-3.30pm).
FAQs
Can I buy family income benefit if I’m divorced?
Yes, you can buy family income benefit if you’re divorced. But if you should die, any child maintenance payments might stop.
FIB could help with continuing child maintenance payments and other childcare costs, ensuring that your children are financially protected.
Can I write my family income benefit in trust?
Yes, it is possible for family income benefit to be written in trust.
This will ensure any payout is kept separate from the rest of your estate when you die. It also won’t be subject to inheritance tax.
Writing your FIB in trust also avoids the probate process, so your beneficiaries should receive the payment sooner.
Can I hold more than one life insurance policy including family income benefit?
You’re allowed to hold multiple life insurance policies, including family income benefit.
It can be complicated working out exactly what you need. But a specialist adviser, such as our partner LifeSearch, can help you find the right combination of policies.
Should I consider inflation when calculating my family income benefit payments?
Yes, remember to take inflation into account when you’re working out how much cover you need.
Due to rising living costs, the money your family receives may need to stretch further in years to come.
It might be possible to index-link a policy in line with inflation. This means the income your family receives will hold today’s value in real terms further down the line. However, you’ll probably have to pay more for your premium if you choose this option.
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With more than eight years’ experience in writing and sub-editing content, Karen started her career in fashion before making the move to insurance. She now specialises in producing clear, engaging content that helps people make better financial decisions.
Karen’s areas of expertise include insurance products, such as car insurance, travel insurance and life insurance, as well as utilities such as energy comparison.
Stephen Maunder is an experienced personal finance editor, having spent more than a decade working for consumer print and online titles. He won several industry awards for his personal finance features at Which?, before becoming Deputy Editor at Compare the Market.
Tim Knighton is an expert in building and managing relationships with big brands for the benefit of customers, with more than 20 years of experience. He seeks out the right products that look after you and those you love most during the toughest times.
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