What if my family needed a monthly income, not a lump sum?
Family Income Benefit Explained: Life Cover That Pays an Income
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- Last reviewed
- Reading time
- 2 min read
This guide provides general information only. It is not financial advice or a personal recommendation and does not take account of your individual circumstances.
Quick answer
Family income benefit is a type of term life insurance that pays a regular income, rather than one lump sum, if you die during the policy term. Payments usually run from the claim until the end of the term, so the total paid falls as the term goes on. It is often used by families who want to replace a monthly income while children are growing up.
Key figures
- payments instead of a single lump sum
- Monthly
- payments usually run from the claim to the end of the policy term
- To term end
- the total payable shrinks as the remaining term shortens
- Falls over time
How it works
MoneyHelper explains that life insurance can pay out either a lump sum or regular payments when you die. Family income benefit is the regular-payment version.
You choose a monthly or annual amount and a term, for example until your youngest child turns 21. If you die during the term, the policy pays that amount from the claim until the end of the term. If you die near the start, it pays for many years. Near the end, it pays for only a short time. If you survive the term, it pays nothing.
Example: a policy paying £2,000 a month for 20 years. A claim after 5 years would pay £2,000 a month for the remaining 15 years. A claim after 18 years would pay for 2 years.
Why people choose it
- It matches how a household spends. Bills, childcare and the mortgage are paid monthly, so a monthly income can be easier to plan with than a large lump sum.
- It can cost less than lump-sum cover for the same total, because the total payable falls each year, similar to decreasing term cover.
- It is straightforward to size. Many people base it on the take-home income the family would lose.
Things to check
- Inflation. A fixed monthly amount buys less over time. Some policies let payments rise each year, usually for a higher premium.
- Lump sum option. Some policies let the beneficiaries take the remaining payments as a single, usually discounted, lump sum.
- Tax. Life payouts are not usually treated as taxable income for the family, but if the policy isn't in trust, the value can count towards the estate. See life insurance in trust.
- What it doesn't cover. It pays on death, not if you are ill and can't work. That is what income protection is for.
Alongside other cover
Family income benefit is often used with other cover rather than instead of it, for example a decreasing policy to clear the mortgage plus family income benefit to replace income. Life insurance explained covers lump-sum cover, and the financial checklist after having a baby sets it in the wider picture for new parents.
Questions worth asking
- How much monthly income would the family need if you died?
- Until when, for example until the youngest child finishes education?
- Should payments rise with inflation?
- What do workplace benefits such as death in service already provide?
- Should the policy be written in trust?
Frequently asked questions
It is term life insurance that pays a regular income, usually monthly, from a claim until the end of the policy term, instead of a single lump sum.
It is often cheaper than lump-sum cover for a similar total, because the total payable falls as the term runs down. Prices depend on age, health, the amount and the term.
Payments are not usually treated as taxable income. If the policy is not written in trust, its value may count towards the estate for Inheritance Tax.
Some policies allow the remaining payments to be taken as a lump sum, usually at a discount. Check the policy terms.
Sources
Related questions
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