Insurance
Family Income Benefit
What you need to know about Family Income Benefit
Family Income Benefit (FIB) is a type of life assurance policy that pays a regular, tax-free monthly income to your family if you die during the policy term — rather than a single lump sum.
The financial loss of a loved one can place enormous strain on a family. Family Income Benefit helps ease that pressure by ensuring your family receives a dependable monthly income to cover everyday living costs, without having to manage a large sum of money all at once.
It is particularly well suited to families who rely on a regular income to meet ongoing costs, such as:
- Replacing a lost monthly salary so your partner can maintain their current working arrangements and lifestyle
- Covering everyday household costs — bills, groceries, childcare and school expenses — month after month
- Giving the remaining parent the financial freedom to work flexibly around their children, rather than being driven purely by the need to earn
- Providing certainty and stability for the years that matter most, until your children are financially independent
How does Family Income Benefit work?
Family Income Benefit works differently to other life insurance products. Here is how it works and what your options are.
You choose a monthly income amount, a policy term, and whether you want level or inflation-linked payments. If you die within the term, your beneficiaries receive that monthly income for the remainder of the term.
For example, if you take out a 25-year policy and die in year 9, your family receives the chosen monthly income for the remaining 16 years. If you survive to the end of the term, the cover expires and no benefit is payable. There is no cash or surrender value at any point.
With a level policy, your family receives the same fixed monthly income throughout the remainder of the policy term. Your premium is also fixed and will not change. This option offers simplicity and predictability, and is typically the more affordable choice.
The drawback is that the real value of the payments may reduce over time due to inflation — £2,000 a month today will not go as far in 15 years’ time.
With an inflation-linked policy, the monthly benefit increases each year — either in line with the Retail Price Index (RPI) or by a fixed annual percentage (typically 3% or 5%). This helps protect your family’s purchasing power over the long term.
Premiums for inflation-linked policies are higher than for level cover, but they provide greater protection against the rising cost of living over an extended term.
Family Income Benefit can be arranged on a sole life or joint life basis. A joint policy pays out on the first death only — the surviving partner then receives the monthly income for the remainder of the policy term. A joint policy is often the most cost-effective solution for couples with dependent children.
You may be able to enhance your Family Income Benefit policy with the following optional benefits, subject to insurer availability:
- Critical Illness Cover — the policy also pays out if you are diagnosed with a specified serious illness, such as cancer, heart attack or stroke
- Waiver of Premium — your premiums are covered if you are unable to work due to illness or injury, keeping your policy in force
Both add-ons are available at an additional monthly premium. Your adviser will discuss the options most suitable for your circumstances.
We strongly recommend placing your Family Income Benefit policy in trust. Writing the policy in trust means payments go directly to your named beneficiaries without forming part of your estate. This avoids the need for probate, enabling your family to receive payments faster. Your adviser will guide you through the most appropriate trust arrangement for your situation.
