This page was last updated on 1 July 2021.
Family Income Benefit In 2021In the article below, we answer the most common questions people have about family income benefit (fib), such as ‘What is Family Income Benefit?’ and ‘Is it right for me?’. We also discuss the alternatives, such as term life insurance.
Topics that you will find covered on this page
What is Family Income Benefit?
Family income benefit is one of the three main types of life insurance policy. It guarantees your loved ones a regular monthly income if you die during the term.
Generally, the premiums with these life insurance policies are lower. By providing the payout as regular income payments, your dependents do not need to budget. This ensures they can pay their mortgage payments, household bills, and other finances.
How do family income benefit policies work?
First, you need to make an appointment with an expert advisor. The experts will help you figure out how much you want to leave your family, and for how long the payouts would need to continue for. This determines your premiums.
You will pay either a guaranteed or reviewable monthly premium until you die, or your policy comes to an end. If you die during the term of the policy, your insurer will make regular payments to your children and/or partner, for the remainder of the policy term.
For example, if a policyholder agrees to a 40-year policy and dies after 10 years, their beneficiaries will receive the agreed amount for the remaining 30 years. However, if the policyholder dies after 25 years, the family would only get support for the last 15 years of the life insurance policy.
Here is a video explaining how they work.
Who might Family Income Benefit be suitable for?
A family income benefit policy might be a good idea for anyone wanting to offer their families protection should they pass away. It gives your family security and takes away the risk associated with a large, one-off, payment.
When a loved one dies additional costs, such as child care due to the loss of one parent, might arise. Furthermore, some people find a lump sum payment difficult to manage at the best of times, let alone when grieving. In these circumstances, a family income benefit life insurance policy can help with budgeting.
Can I get it if I have a pre-existing medical condition?
There are no medical conditions that are exempt from a family income benefit policy. However, your lifestyle and health can affect the family income benefit quote you receive from insurers.
As with all life insurance policies, your medical history, occupation, and other lifestyle factors affect the type of plan and premiums you get. That is why we recommend speaking with advisors before making decisions and comparing the different prices on the market.
Is Family Income Benefit insurance right for me?
In most cases, people take out a life insurance policy to protect a liability they have, for example, a mortgage. Others want to ensure their children have access to funds if they die.
A family income benefit policy is a good choice if you want to minimise total expenses, as often premiums are lower than the other options of life insurance policies.
However, in the event of your death, a family income benefit policy will not give a lump sum payout. For parents with young children, for example, a regular income might be better. This is because it helps with the coverage of everyday outgoings.
Before deciding whether family income benefit life insurance is right for you, seek advice from specialists. They have the knowledge and experience to guide you through what life policies, and insurance companies, are a good option for you.
Who wouldn’t be suited to a Family Income Protection insurance policy?
Often a person takes out a life insurance policy so that when they die their family can pay off the rest of the mortgage on their home. The fact is, with family income benefit insurance, this is unlikely.
This is because the income benefit arrangement gives small regular payments, rather than a lump sum when the claim is made. This means that, with family income benefit insurance, it will be a long length of time until the value of the income benefit amounts to the rest of the mortgage.
If you pass away during the term of your policy, your partner might need to make decisions, such as whether to remortgage your family home.
Furthermore, the later on in the policy they experience your loss, the less they will get. Therefore, you might want to consider an alternative type of life insurance if you want to guarantee your family more money overall.
Speak to an adviser before deciding what life insurance is right for you. Also speak to your dependents, to determine how much financial assistance they might need should you pass away.
How much will Family Income Benefit cost me?
Compared with other types of life insurance, family income benefit is normally the cheapest service. This is because the insurance company only has to make small regular payments and only for the remaining duration of the policy.
Exactly how much your family income benefit will cost depends on several factors. Below are some of the most important factors influencing family income benefit quotes:
- Policy term– this is how long you want to be covered by life insurance for. If you die outside of the policy term, your family will not get the income benefit.
- Your health– health problems such as diabetes, and lifestyle factors such as smoking, all affect your risk of death. If you are likely to die earlier in your policy, your insurance premiums are likely to go up. This is because the insurer is more likely to have to start payments earlier in the term of the policy.
- Your age – again, your age affects your risk of death, and therefore the amount the insurance company is likely to have to pay out overall.
- The payout amount– In simple terms, the higher level of financial payout you want your family to receive, the more life insurance is going to cost you.
How much cover do I need?
The amount of cover needed is very much a personal matter. Therefore, you should get in touch with expert advisers to discuss your personal case and application.
The average outstanding mortgage amount for homeowners in the UK is estimated to be £121,687. A lot of guides recommend that your life insurance covers your remaining mortgage as a bare minimum so that your family can at least afford the home should they wish.
If you have any other large debts, that your partner might not be able to cover, your life insurance policy should cover these too
If you die, those that rely on your salary and savings may struggle. Therefore, most people want to ensure that all major outgoings and living expenses, such as car insurance, are covered by their family income benefit policy.
Are my premiums guaranteed?
When you take out your policy, you can choose between guaranteed or reviewable premiums.
Guaranteed premiums are decided at the outset of the policy and do not change at any point. The exception to this is if your policy is linked with inflation. Then, even guaranteed premiums fluctuate slightly, but so do the monthly benefits.
Reviewable premiums are often set up until a point in the policy term, at which they will be reviewed. For some, the result is that additions are made to their premiums. This can cause problems down the line if you cannot afford the difference.
What are the best companies for family income benefit quotes?
When taking out any policy, you should check they are authorised and regulated by the Financial Conduct Authority.
Some of the top insurance providers in the UK to consider are Aviva, Vitality, Legal and General, Royal London, LV=, and Aegon.
Can I combine my insurance with Critical Illness Cover?
Some insurers do allow you to combine family income benefit with critical illness cover, as part of a bundle. Of course, you will need to specifically request this from the team beforehand.
We recommend comparing the cost of both combined and separate policies if you do decide you need both family income benefit and critical illness cover. An expert adviser can give you the best tips, and look into the different policies on your behalf.
What are the alternatives?
If family income benefit isn’t for you, there are other life insurance policies to consider. The top choices are term life insurance and whole life insurance.
Term life insurance shares similarities with family income benefit, in that you are only covered by the policy should you die during the policy term. However, rather than giving small regular payments, your loved ones receive a lump-sum.
Whole life insurance covers you for death at all ages- the term of the policy is until the end of your life. Due to this, premiums can be much higher. Again, the payment is a large, one-off, cash lump.
If you are retired, have no dependents, and/or are a beneficiary of someone else’s life insurance, you might not need to take out life insurance at all!
Seek professional advice from a company that is authorised and regulated by the financial conduct authority, before signing a policy form. Remember, that for all types of life insurance you will need to set up a direct debit to pay premiums.
Are there joint policies available?
Yes, joint policies are available. Partners might want to link their policies if neither could afford to live without the other’s income. Joint policies often have lower premiums than two separate policies. However, joint policies only pay out once, when the first policyholder passes away.
If you have other dependents, two separate policies might offer more security. The cost is normally only 10-15% more than a joint policy, and if both policyholders die during the term of the policy dependents get two income payments.
What are the pros of family income benefit?
The main advantages of family income benefit are that they have cheaper premiums, and can act as budgeting tools for dependents should you die. They ensure that your loved ones can afford the same quality of life they currently have.
What are the disadvantages?
The main disadvantage is that the total dependents receive decreases the later during the policy term you die. Furthermore, there is no cash lump sum should they need a large amount of cash. This can make it hard for your partner or children to pay off large debts, such as your mortgage.
Are family income benefits tax-free?
The monthly income payments are not subject to income tax. Your dependents will receive their payments tax-free.
However, like with other types of life insurance they might not be exempt from inheritance tax. This is because, unless the policy is written in trust, it is considered to be part of the estate. Inheritance tax is paid on anything over £325,000.
Can I write my insurance in trust?
Writing life insurance in trust is a wise move, as your policy is not considered as part of your estate. This reduces the likelihood of paying inheritance tax, and the amount you pay should you reach the threshold.
Writing a policy in trust also lets you sidestep the probate stage, so your family get the money quicker. All life insurance policies can be written in trust.
Will my cover keep up with the cost of living?
Particularly for those with a long policy term, inflation means that what your dependents need now might rise in the future. This could be problematic.
If you want their monthly income benefits to keep up with the cost of living, you will need to choose a policy that rises with inflation. Speak to an adviser to find out what policies offer this, and how it will affect your premiums.
Does cover include coronavirus?
Both new and existing policies cover deaths due to illness and injury that arise as a result of Covid-19. This is reassuring, as the world faces new challenges regarding the virus and treatment. However, if the pandemic worsens, premiums might rise for those taking out new policies.
Learn more about health insurance and related topics
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Permanent health insurance is one type of protection available for your wages. A PHI policy offers financial protection and peace of mind, in the event that you suffer an illness or disability that takes you out of work.
Whole Life Insurance
Whole life insurance is a type of life insurance policy that, unlike term life insurance, provides life insurance cover for the rest of your lifetime. Read more about them here.
Family Income Benefit
Family income benefit is one of the three main types of life insurance policy. It guarantees your loved ones a regular monthly income if you die during the term. Read more about it here and see if it could help you.
Disability policies are a type of income protection insurance. If you are unable to work, your benefits package will pay a monthly benefit amount to replace your lost income.
Group Income protection
Group Income Protection (gip) gives employees that find themselves unable to work due to illness or injury a replacement income. It is salary protection insurance, taken out by companies as an employee benefit.
An endowment plan is a type of life insurance policy. As well as acting as a life insurance policy, it is also an investment fund. Read more about them here.