If you want to ensure your family is protected with a regular income should the worst happen to you, family income benefit could offer a useful solution. Here, we’ll explain what family income benefit is and how it works. We’ll also compare it to other types of protection and show you the simplest way to compare quotes from top providers.
What is family income benefit?
Family income benefit (FIB) is a type of life insurance that pays out a fixed monthly or annual income to your beneficiaries (family) if you die during the policy term. Unlike traditional life insurance, which pays a single lump sum, FIB spreads the payout across the remaining years of the policy.
The income can be used to help cover everyday living costs such as mortgage payments, rent, bills, childcare, school fees, food shopping, and other household expenses. The idea is to replace the income you would have provided, giving your loved ones a degree of financial stability at a difficult time.
How does it work?
After setting up your policy - deciding the term length and level of payout - you’ll pay monthly (or sometimes annual) premiums to keep your cover in place. If you pass away during the policy term, the insurer pays your beneficiaries a regular, tax-free income for the remainder of the term.
The key difference with family income benefit compared to some other types of protection is that instead of a single lump sum payout, the policy pays an ongoing income. The exact premium and payout amount will depend on factors like your age, health, policy length, and the level of replacement income you choose.
Difference between family income benefit vs other insurance
Each type of insurance is designed to help protect you across a range of situations. Here’s how family income benefit compares to other popular policies.
Family income benefit vs income protection
Income protection insurance pays a replacement income if you can’t work due to illness or injury, whereas FIB only pays if you die during the policy term. Income protection is designed to replace your own living expenses while you’re alive; whereas FIB supports your family after your death.
Family income benefit vs life insurance
Life insurance typically pays a one-off lump sum to your beneficiaries when you die, which they can spend or save as they choose. FIB pays a steady income, which may be easier for budgeting and managing ongoing bills, but there’s no lump sum for large one-off expenses.
Family income benefit vs critical illness cover
Critical illness cover pays a lump sum if you’re diagnosed with a serious illness listed in your policy. FIB doesn’t pay out for illness unless you’ve added an optional critical illness benefit to your policy, and even then, it usually pays it as an income rather than a lump sum.
Family income benefit vs level term insurance
FIB technically works a bit like decreasing term insurance, as over time, the total amount payable will decrease as the remaining term also decreases. Whereas with level term life insurance, the total payout remains fixed throughout the term. However, both policies expire without paying if you outlive the term.
How policy applications are assessed
When you apply for family income benefit, insurers usually want to know fairly in-depth details about your lifestyle and health to assess the level of risk. This helps them determine how your policy will be structured and what premiums you’ll pay. Here are the key areas they consider:
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Health and medical history: You’ll be asked about any past or existing health conditions, particularly those that could affect your life expectancy, such as heart disease, cancer, diabetes, or respiratory conditions. Insurers will also want details of any medication you take, past surgeries, or recent symptoms requiring medical investigation.
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Your age: The older you are, the higher the likelihood of health issues developing during the policy term. As a result, premiums tend to increase at the age you take out a policy, and the number of affordable options available may be smaller.
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Family medical history: If serious hereditary conditions run in your family, especially if immediate relatives (parents or siblings) were diagnosed at a young age, insurers may take this into account.
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BMI and lifestyle: Although not an entirely accurate measure of health, insurers will still want to know your weight and height to get an idea of your Body Mass Index (BMI), as being underweight or overweight can be linked to health risks. Lifestyle choices such as smoking, drinking alcohol, diet, and exercise levels can also influence your risk profile.
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High-risk activities: If you take part in dangerous hobbies or occupations, such as rock climbing, scuba diving, aviation, or even working at heights, your insurer may view you as higher risk and adjust your premiums or policy terms accordingly.
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Other health conditions: If you have issues such as high blood pressure, high cholesterol, or mental health conditions, these may affect your eligibility for cover or the price you pay for a family income benefit policy.
Get a bespoke quotes comparison online
Finding the right family income benefit policy can be tricky - payout levels, terms, and optional extras vary between insurers. Some providers specialise in policies with flexible payout structures, while others focus on lower premiums for set terms. This makes comparisons online using automated tools relatively inefficient or inaccurate.
A quick conversation with a specialist adviser is the easiest way to ensure you get the right level of protection for your family’s needs. Whether you’re adding extra cover alongside other insurance policies or starting from scratch, our advisers can help you compare tailored quotes in minutes.
If you’d like a free, no-obligation chat with a family income benefit specialist, you can get started here:
Get a bespoke family income benefit quotes comparison
Popular UK policy providers
Not all insurance providers offer family income benefit, and each will have its own preferences about how policies are structured. To give you an idea of what’s available, here are some popular UK providers:
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Liverpool Victoria (LV): With LV, you can get a family income benefit policy with premiums starting from £5 per month. They also offer inflation-linked cover to ensure the payouts hold value over time, and terminal illness is included as standard.
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Aviva: The YourLife Plan Family Income Benefit insurance from Aviva comes as either a single or joint life policy. You can opt for a level or increasing monthly benefit (which increases by 5% yearly). Aviva also offers the option to switch your monthly payments to a lump sum after a claim has been made (but the amount will be recalculated as less than the total they pay if you stick to monthly).
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Royal London: Although premiums tend to be high compared to some providers, Royal London can offer flexible forms of family protection insurance. They’re a useful option if you need to cater for specific circumstances like a history of diabetes or if you’re taking out a policy at an older age, but these tailored policies come at a price.
If you want to get a better idea of the best UK family income benefit providers based on your needs and circumstances, it’s worth having a brief discussion with an insurance adviser to see what your options are.
Family income benefit advantages and disadvantages
Like most forms of protection, family income benefit has distinct advantages and disadvantages to consider.
Advantages
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Affordable premiums: Because family income benefit pays out over time rather than in a single lump sum, the overall cost of cover can be lower compared to traditional life insurance policies.
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Regular income for loved ones: Provides a predictable, tax-free monthly or annual payment that can help cover everyday living costs.
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Tailored policy terms: You can choose how long the cover lasts to align with your family’s needs and any commitments like mortgage repayments.
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Inflation protection: Some insurers allow you to link your payout to inflation, or increase cover by a fixed percentage each year, ensuring the income maintains purchasing power.
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Peace of mind: Reassurance that your family’s lifestyle can be maintained even if you’re no longer around to provide for them financially.
Disadvantages
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No payout after the term ends: If you survive the policy term, there’s no payout, and premiums are not refunded.
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Decreasing total payout: Because the policy only pays until the end of the term, the closer you are to the end date when you pass away, the smaller the total amount your family will receive.
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Not suited for large expenses: If your family needs a lump sum to clear debts, pay off a mortgage, or make big purchases, a lump-sum life insurance policy may be more appropriate.
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Inflation risk if not linked: If you choose not to index-link the policy, the real value of the monthly payout (how much you can buy with the same amount of money) could erode over time due to rising prices.
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Underwriting required: Medical and lifestyle checks are still part of the application process, and some health conditions or risky occupations may lead to higher premiums or policy exclusions, or require a specialist insurer.
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Comparing can be confusing: Without expert support, it can be challenging to make accurate comparisons and ensure that you’ve got the correct level of protection for your family.
Why choose Money Helpdesk for your family income benefit insurance?
Choosing the right family income benefit policy can be overwhelming, especially with different payout structures, term lengths, and optional extras to consider. The variety of providers available makes it crucial that you find the right policy for your needs.
Whether you’re protecting a young family, securing ongoing mortgage payments, or simply adding a cost-effective safety net, our expert advisers can help you compare family income benefit policies tailored to your needs.
Here’s why families across the UK, from Cardiff to Newcastle, and everywhere in between, trust us to arrange their family income benefit insurance:
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We specialise in tailored life insurance products, including FIB
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Our advisers are 5-star rated on leading review platforms
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Free initial chat, with no obligation to proceed
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Access to policies from both mainstream and specialist insurers
Ready for a free, no-obligation chat with a family income benefit specialist? You can get started here.
FAQs
No, the payout from a family income benefit policy is usually tax-free for your beneficiaries. This is because you’ll likely already have paid tax on the money you use to pay the premiums.
However, if the policy is not written in trust, the income could potentially be subject to inheritance tax (IHT) depending on the size of your estate.