Family Income Benefit Insurance Guide 2024

Elaine Brookes Steve Case

Author: Steve Case - Insurance Expert

Reviewed & Fact Checked By: Elaine Brookes

Updated: 22nd February 2024

Family income benefit insurance

Family income benefit insurance is a type of decreasing term life cover with one pertinent difference.

It doesn’t pay out a lump sum in the event of the policyholder’s death. Rather, it pays out a fixed income for the duration left to run on the policy.

That means you can take out a Family Income Benefit Policy for the amount you specify, such as the salary of the main earner in the household, for example, to pay £2,000 per month.

This will not be indefinite if a claim is made, as the payments from the insurer will stop when your policy term expires.

The term durations can be anything from 20 to 25 years, and whenever your cover expires, the payments from your insurer stop.

In layman’s terms, if you took out cover today on a 20-year term policy and then had to claim one year into it, the policy would pay the monthly agreed amount to the beneficiary for the remaining 19 years that would be left to run on the term of the policy.

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If, however, you took the same policy out and the named beneficiary didn’t need to claim it until 19 years into the policy, the payments made by the insurer would only continue for the remaining year of the policy. That’s why it’s classed as a decreasing term policy.

Is a Family Income Policy Suitable for Your Family’s Financial Protection?

In the case of paying off secured finance, it’s often not the case. Larger debts are best protected using a level-term policy, meaning it would pay out a fixed lump sum, regardless of the claim, other than any clauses in the policy.

Suitable situations for a Family Income Benefit Policy could be to cover the cost of living expenses for your family. It may be that you would want to know if they’d continue to have your wages coming into the household until at least your children were through college or university.

Or, if you have care costs, you have to factor them into your current outgoings to know that those costs would continue to be covered for a set period of time. A family income benefit is income protection, more than it is life insurance.

Adding Extra for Affordable and Better Insurance Cover is Possible

As with most insurance policies, there’s usually the option to add on a level of critical illness cover. This can be added to a Family Income Benefit policy as well.

As this type of cover is decreasing, it is among the most affordable levels of cover you can buy. The lower cost of premiums can be cheaper than a level-term policy. It will still pay should the policyholder be diagnosed with a terminal illness if you add critical illness cover to your plan.

The more levels of cover you add to this, though, the higher the cost will become, sometimes to the point that when you finally reach an agreed level of cover that you need in place, the premiums can work out more expensive than if you were to opt for level-term cover, with the same added extras.

There are some insurers that will provide additional levels of cover inclusively as added extras to select packages.

Another option you’ll have available is a Waiver of Premium. With that added on, you insure your monthly premiums, so you would know those would continue to be paid by the insurer for the remainder of the policy if you were to be diagnosed with a critical illness or a long-term illness, making you unable to work.

Joint policies for dual-income households

In dual-income households, it makes perfect sense in most cases to consider joint policies as it usually works out cheaper because the policy ends on the death of one person.

The survivor will receive the amount of benefits that are left to run on the cover. However, it should be remembered that the premiums will only cover the income you agreed to when you took the policy out.

There wouldn’t be any large lump sum payments made. Just a monthly income for however long is left on the policy.

All your existing financial obligations would still need to be maintained using the income from the policy. As they can be arranged on terms as long as 20+ years, always consider the cost of inflation.

What you pay just now for any carers, home help, or child care, will rise in the future. As will the cost of energy bills, home repairs, and most of the living expenses.

A couple of ways you can build a buffer to cover for inflation are to:

  • 1) Add a percentage to the amount of cover you want to keep coming in, such as 5% to 10% above the salary you’re protecting.
  • 2) Choose a policy that pays out more each year. Both would bump up your premiums, but how much is what you would need to find out at the quotation stages before applying.

For the most part, a Family Income Benefit Policy is an affordable insurance cover. Still, as it’s a decreasing term policy and doesn’t include any lump sums, it’s not suitable for everyone. Nor is it a level of cover widely available as it’s considered a specialised level of protection.

The basic level of cover will provide beneficiaries with an income upon the policyholder’s death. That’s only going to be until the policy expires. Then, the payments will cease.

A 20-year term FIB policy will not pay an income for 20 years. It’s 20 years from the original date detailed on your policy.

When that expires, the income that would have been being paid to the named beneficiary would stop being paid.

The Benefits of family protection products

In the UK, there are a few different life insurance policies that offer benefits to families. One option is family life insurance, which pays out a lump sum to your family when you die. This can cover funeral costs, pay off debts, or help with everyday expenses.

Another option is income protection insurance, which pays out a regular income to your family if you can’t work because of an illness or injury. This can help to cover bills and other household expenses.

Both of these policies can be helpful for mums and families living in the UK. They provide peace of mind that your loved ones will be taken care of financially if something happens to you.