TL;DR
Family Income Benefit - key points
Family Income Benefit pays a regular income for a set period if the insured person dies during the policy term.
On many policies, the income is also paid on diagnosis of a terminal illness. A regular monthly income can be easier to budget with than one large lump sum.
The income is paid only until the end of the term you choose, so the later a claim is made, the shorter the payment period. It is mainly worth considering if your family relies on your income, especially if you have children.
Premiums depend on your age, health, smoking status, the monthly amount and the policy term. An adviser can help you compare it with lump-sum life cover and choose a term that fits your family.
What is Family Income Benefit?
Family Income Benefit is a type of term life insurance. If the insured person dies during the policy term – or, on many policies, is diagnosed with a terminal illness as defined in the policy – it pays your family a regular income, usually monthly, until the end of that term instead of one lump sum. The income can be level or, on some policies, increase over time. Tax treatment can depend on the policy arrangement and any trust. Ask for advice on your circumstances before relying on a tax-free outcome.
How does family income benefit work?
A standard life insurance policy usually pays one lump sum if the insured person dies, or is diagnosed with a terminal illness, during the policy term. A lump sum can be useful for repaying a mortgage, but some families find it harder to manage a large one-off amount and turn it into a monthly budget.
Family Income Benefit works differently. When you take out the policy, you choose the amount of regular income and the policy term. If an insured event occurs during the term and the claim meets the policy conditions – on death or, where the policy includes it, on diagnosis of a terminal illness as defined in the policy – the insurer pays that income to your family, usually monthly, until the end of the term set out in your policy.
How long should I take out family income benefit insurance for?
Family Income Benefit can be taken out for anything from a few years to several decades, and the term you choose matters. The income is paid only until the policy term ends, so the payment period depends on when the insured event occurs:
- If you take out a 30-year policy and a covered death occurs in the third year, the income is paid for the remaining 27 years or so;
- If you take out a 20-year policy and a covered death occurs after 18 years, your family receives the income for only the remaining 2 years.
The term should fit your family’s situation. Our advisers can help you compare options, taking into account your age, income, financial commitments, your children’s ages and other relevant factors.
A longer term means your family could be supported for longer, but it usually costs more, because the risk of death increases with age. Insurers also set their own maximum ages for starting cover and for when the policy must end, and these limits vary, so the terms available to you depend on your age and health.
When is Family Income Benefit worth considering?
Family Income Benefit is not right for everyone. It is most relevant if other people rely on your income, especially if you have children. Losing a partner affects any household’s finances, but families with children are often hit hardest, because one income may suddenly have to support two, three or more people.
Many families choose a term that ends when their youngest child is expected to become financially independent – for example, in their early twenties, once education is finished. The early years are when a family relies on your income for longest, so if a long term is not affordable, a shorter policy may still be worth discussing. An adviser can help you balance the term against the monthly premium.
How much does Family Income Benefit cost?
There is no single price. Premiums depend on factors such as your age, health, smoking status and lifestyle, the amount of monthly income, the policy term and whether the income is level or increasing. Each insurer assesses you individually, so we cannot quote a figure here. If you would like an indication of the cost, or want to review cover you already have, get in touch – the conversation is with no obligation.
To discuss the right term and monthly amount for your family, use the form below. All our insurance consultations and advice are free of charge and without obligation.
Frequently asked questions
Does Family Income Benefit pay a lump sum?
Usually not: Family Income Benefit is designed to provide regular income, usually monthly, following a covered death or qualifying terminal illness. Payments relate to the remaining period up to the selected policy end date, with their start and timing governed by the contract. Some insurers allow the remaining payments to be converted into a lump sum at claim stage. If you need capital to repay a mortgage as well as ongoing family income, compare this with a separate lump-sum life policy.
Can I combine Family Income Benefit with other life insurance?
Yes. Some families combine a lump-sum life insurance policy – for example, to help repay the mortgage – with Family Income Benefit to replace monthly income for everyday costs. Whether this makes sense depends on your budget, your existing cover and what your family would need.
Does the benefit always last the same length of time?
No. Benefits run only until the selected policy end date, so a covered death or qualifying terminal illness later in the term leaves a shorter period of support. The contract determines when payments start and how they are made; the date you report a claim should not be confused with the insured event. Match the term to how long your family would need support, for example until your children are expected to become financially independent.
Is Family Income Benefit the same as income protection?
No. Family Income Benefit pays your family an income if you die during the policy term (and, on many policies, if you are diagnosed with a terminal illness). Income protection pays you a monthly benefit if you cannot work because of illness or injury. They cover different risks, and some people have both.