When most people think of life insurance, they picture a lump sum. But there’s another option that many families find easier to understand, and often more affordable: family income benefit. Instead of one large payout, it replaces your income with regular monthly payments.
How does family income benefit work?
You choose a monthly amount and a policy term, for example £2,000 a month until your youngest child turns 21. If you die during the term, your family receives that monthly income from the date of the claim until the end of the term. The payments are normally tax-free.
Many policies let you choose to increase the payments each year, so they keep pace with inflation.
Why it can be cheaper
The total amount the insurer might pay reduces as time passes, because there are fewer years left to pay out for. A claim in the first year of a 20-year policy means 20 years of payments; a claim in year 18 means just two. Because the insurer’s potential liability falls over time, premiums are often lower than for level term cover with a similar starting value.
The advantages
- It mirrors your salary. A monthly income is easy to plan around and directly replaces what your family would lose.
- It’s easier to manage. A regular income can feel less overwhelming than managing a large lump sum at a difficult time.
- It’s affordable. It can be a cost-effective way to get meaningful cover, particularly for young families.
The limitations
- It doesn’t provide a lump sum to clear a mortgage or large debts in one go, although some insurers allow the payments to be converted into a lump sum.
- The value of cover falls over time, so it isn’t designed for long-term needs such as inheritance tax planning.
Combining it with other cover
A popular approach is to pair family income benefit with decreasing term cover. The decreasing policy clears the mortgage, while family income benefit replaces the income your family would need for everyday living costs. Together, they can provide comprehensive protection at a lower cost than a single large level-term policy.
Who is it suited to?
It’s particularly well suited to parents with young children, couples who rely on two incomes, and anyone who wants their cover to match a specific period of financial responsibility.
The figures above are illustrative only. The right cover depends on your circumstances.
We’ll help you work out how much monthly income your family would need, and for how long, then compare family income benefit policies across the market. Get in touch for a free consultation.
