Family income benefit is a type of life insurance designed with families in mind. The main difference between this and other types of life insurance cover is that pays out a monthly amount if you die, instead of a lump sum. The idea being that, if you have a family, this would better help them cover the monthly expenses they’d still have if you were no longer around.
Family income benefit can be useful in situations where you want to be absolutely sure that there’ll never be a financial shortfall for your family. The monthly benefit paid out can provide a steady income for as long as they’d need it (until the policy ends).
How family income benefit works
- You choose a cover amount (how much would be paid out per month)
- You choose a policy term (how long you’ll be insured for)
- The policy pays out if you die during your policy term
- It would pay out monthly for the rest of your policy term
If you die during your family income benefit policy term, your family will receive monthly payments for the rest of the term. Bear in mind that the number of payments they receive depends on if and when you die. If you die early in your policy term, they’d receive more monthly payments than if you die later in your policy term. And if you don’t die during your policy term, the policy ends and you’re no longer insured.
How is FIB different to term life insurance?
Family income benefit and term life insurance are similar in that they both cover you in case you die within a set amount of time – giving you peace of mind that your family would be able to cope financially without you. The two key differences are in:
|Family income benefit (FIB)||Term life insurance|
|How it pays out||A monthly amount for the rest of your policy term (if you die during your policy term)||A lump sum after you die (if you die during your policy term)|
|How much it pays out||You choose a monthly amount when you take out a policy – but the cumulative amount your loved ones receive depends on when you die (if you die sooner, they’ll receive more monthly payouts than if you die later, and vice versa)||You choose a cover amount when you take out a policy – but the total lump sum amount paid out depends on whether you choose level or decreasing term life insurance|
Who should buy family income benefit
Family income benefit is more suitable in some circumstances than others. It depends on what kind of financial support you think would be most appropriate for your family if you died. It can be particularly helpful for:
Parents with young children
Family income benefit would provide your partner and children with a monthly income to help them keep up with the cost of day-to-day life. If your family is young, it’s likely you’ll have regular monthly expenses that could be difficult to keep on top of with only one income. Effectively, family income benefit can replace the monthly income that would be missing if you died.
If you’re a single parent, you’ll want to know that your children will be adequately provided for without you being here. A monthly payment is a practical way for your chosen guardian to do that. Receiving the money monthly can be easier for them to manage than a lump sum – ensuring your children’s needs will always be met, while making sure there won’t be shortfall before they reach financial independence.
Other types of life insurance
Term life insurance
Term life insurance is preferable if you want or need to leave a lump sum to your family instead of a monthly amount – e.g. to pay off a mortgage or pay for your funeral. It also guarantees your family will receive a certain amount if you die during your policy term (unlike family income benefit, which could pay out relatively less if you die towards the end of your policy).
Term life insurance and family income benefit can also complement each other. Some people choose to take out both:
- A term life policy to pay off any debts you’ll behind
- A family income benefit policy to make sure your loved ones have steady income and a manageable way to keep on top of their monthly expenses
Whole life insurance
Whole life insurance is different to both term life insurance and family income benefit in that it doesn’t come with a set policy term. Instead, it covers you for your whole life and pays out if you die – whenever that is. This makes it more expensive.
Whole-of-life cover is suitable if you know you always want to leave a set lump sum to your loved ones. Some policies are also investment-linked, which are suitable if you have a higher appetite for risk and want your life cover to be an investment.
Family income benefit vs. income protection
Family income benefit and income protection are both insurance policies that pay out a monthly amount if a valid claim is made – but one covers you for death, while the other covers you for illness.
A family income benefit policy pays out if you die, so the claim would be made by and the money would be paid to your family. An income protection policy pays out if you're signed off work with an illness or injury, so the claim is made by and the money is paid to you. Here's some other key differences between the two:
|Family income benefit (FIB)||Income protection|
|When it pays out||If you die during your policy term||If you're signed off work with an illness or injury during your policy term|
|How much it pays out||The monthly cover amount agreed when you took out the policy – e.g. £2,000/month||Typically 50-70% of your pre-tax salary, depending on the insurer, what you earn, and what premiums you can afford|
|How long it pays out||Family income benefit pays out a monthly amount from when you die to the end of your policy term; the number of monthly payments made depends on when you die and how long your policy runs for||Until you're well enough to go back to work or your policy ends (if you buy full-term cover; and until you're well enough to go back to work or for a maximum of 1, 2 or 5 years per claim (if you buy short-term cover)|
- Family income benefit (FIB) is a type of term life insurance designed with young families in mind
- Instead of paying out a lump sum if you die, it pays out a monthly sum for the rest of your policy term
- FIB can help your loved ones manage their monthly finances without you and your income
- You could buy a FIB policy alongside a term life policy (one to cover the monthly expenses and the other to pay off any debts, like a mortgage)
- One of our advisers can help you work out the most suitable protection for you and your family