Family income benefit - everything you need to know
When you pass away, family income benefit (FIB) can provide your loved ones with the financial security they need to cover day-to-day living costs. Discover everything you need to know and work out whether it's the right choice for you in our useful guide.
This page gives you information about a financial product that is currently not sold by MoneySuperMarket. We can, however, assist you with finding the right life insurance for your circumstances.
Key takeaways
Financial income benefit insurance (FIB) is a type of life insurance that provides regular financial support to your family if you die or are diagnosed with a terminal illness. Unlike standard life insurance, which pays a lump sum, FIB pays an ongoing monthly income.
You pay a monthly or annual premium and choose the policy term. If you die during this term, your family receives a tax-free income for the remainder of the term, however, If you outlive the policy, no payment is made and you don’t get your premiums back.
Ideal for families with young children, especially if one parent is the primary earner as it helps cover ongoing costs like mortgage or rent, childcare, and household bills.
Premiums depend on your age, desired income, smoking status, medical history, and any additional cover like critical illness insurance
What is family income benefit insurance?
Family income benefit (FIB) is a type of life insurance that provides your family with regular financial support if you die or you're diagnosed with a terminal illness.
The main difference between FIB and standard life insurance is that it pays out an ongoing monthly income, whereas other life insurance policies pay out a single lump-sum amount.
This could help your family keep on top of financial commitments such as mortgage payments or rent, plus any additional household bills.
How does family income benefit insurance work?
As the main policyholder, you pay a monthly or annual premium and choose the length of of your policy term. If you die during that time, your family will receive a tax-free income to help replace your lost earnings for the remainder of the term.
For example, if you took out a 20-year policy and died after 10 years, your insurance provider would pay your family for the remaining 10 years. This makes it different to a traditional life insurance policy, which pays a pre-agreed lump sum amount when the policyholder dies.
If you don't die within the term of the policy, your family won't receive any payment and you won't get your money back either.
Who should consider getting family income benefit insurance?
Family income benefit is an appealing choice for families with young children, especially when one parent is the primary earner. FIB can also contribute towards childcare costs and other relevant bills, in addition to mortgage or rent payments.
If you're worried about what might happen to the money before your children are mature enough to spend it wisely, you can always set up a trust; a legal entity that holds the cash until your child reaches a certain age.
Once your child is old enough, your appointed trustee can distribute the money according to your instructions.
How much does family income benefit insurance cost?
Family income benefit is generally cheaper than other types of life insurance, as the risk to insurers reduces each year and the pay-outs are often lower than paying out one lump-sum amount.
The cost of your premiums will depend on a few factors, including:
Your age: the younger you are, the cheaper your insurance will be, as you're considered less of a risk to your insurance provider
The income you want to be paid: the higher the figure you choose, the more your premiums will cost
Your smoking and medical history: some health conditions can decrease your life expectancy according to your insurer, so your premiums will be higher if you have a medical condition or you're a smoker
Additional cover: many family income policies offer critical illness cover, which means your insurance provider will also pay out if you're diagnosed with a serious illness that's included in your policy. If you add this, your premiums will increase
What are the pros and cons of family income benefit insurance?
There are a number of advantages and disadvantages to weigh up if you're considering family income benefit insurance:
Advantages
It's an affordable policy option with lower premiums than other types of life insurance
It can help with long-term family budgeting
Payments are tax-free
It can be written in-trust
Terminal illness cover comes as standard (critical illness can be added at an additional cost)
It can be taken out as a joint policy
Disadvantages
It only pays out if you pass away during the term, and it's possible you'll outlive this period
It will only pay out for the remainder of the policy term, so your family may not get as much if you die closer to the end of your term
You don't get your money back if you don't pass away during your policy term
It's not a suitable option for clearing large debt all in one go, such as a mortgage, or paying for funeral costs
How can I calculate the amount of cover I need for family income benefit insurance?
To calculate how much family income benefit you'll need, it's important to go through your finances and figure out your incoming salary vs any outgoings such as how much your existing bills cost. You'll also need to account for inflation, and add an additional buffer of 5% to 10%.
You'll also need to consider how long you want your cover to last, and how frequent the pay-outs will be. If you'd rather your family have a lump sum payment, family life insurance may be a better option.
Are there any exclusions or limitations with family income benefit insurance?
The main limitations of family income benefit insurance is that it won't pay if you outlive your policy term. Another restriction to consider is that your policy doesn't always cover every type of illness.
It's worth checking if any pre-existing medical conditions in particular are excluded before committing to a policy.
How do I apply for family income benefit insurance and what is the process?
We’ve partnered with LifeSearch to give people even more guidance when buying life insurance. If you’d like some help deciding what kind of cover you need and the process of buying this type of insurance, talk to LifeSearch free of charge. Give them a call on 0800 197 3178.
Opening hours are:
Monday to Friday 8 am to 8 pm
Saturday 9 am to 2 pm
Sunday 10 am to 3:30 pm
Are there any alternatives to family income benefit insurance?
Family income benefit can be taken out alongside a lump sum policy, such as a decreasing term life insurance policy, which is ideal for paying off debts like your mortgage.
Income protection insurance is also worth considering if you can no longer work due to sickness or injury.
Death in service benefits is also available at some workplaces, which can offer your family protection if you die. However, if you leave or lose your job, the cover will end at the same time as your employment.
