Most people picture life insurance as a single big lump sum, but there is another option that can suit families better: family income benefit. Instead of one payout, it provides a regular income. This guide explains what family income benefit is, how it works, why it can be cheaper, and who it suits.
What family income benefit is
Family income benefit is a type of term life insurance that, instead of paying a single lump sum if you die, pays your family a regular income for the rest of the policy term. So if you had a 20-year policy and died in year five, your family would receive a regular payment for the remaining fifteen years. It is designed to replace lost income in a way that mirrors how households actually budget, month by month.
How it works
You choose an amount of regular income, for example a set sum each month or year, and a term, often chosen to last until your children are likely to be financially independent. If you die during the term, the insurer pays that regular income to your family from the point of your death until the end of the term. If you survive the term, the policy ends with no payout, just like other term cover.
Why it can be cheaper
Family income benefit is often cheaper than an equivalent lump sum policy. The reason is that the total amount paid out falls the later in the term a claim is made, because there are fewer years of income left to pay. A claim in year two pays many more instalments than a claim in year eighteen. This reducing total payout, similar in principle to decreasing term cover, keeps the premiums relatively low.
Replacing income, not just clearing debts
The strength of family income benefit is that it replaces income in a form families can easily manage. A large lump sum has to be budgeted and invested wisely to last, which can be daunting at a time of grief. A regular income arrives in a familiar rhythm, helping cover everyday living costs, childcare and bills. For households whose main concern is maintaining day-to-day finances, this can be more practical than a single sum.
Family income benefit versus a lump sum
Whether a regular income or a lump sum suits you better depends on your priorities. A lump sum is flexible and can clear a mortgage or large debt outright, while family income benefit is geared to replacing ongoing income. Many families use both: a lump sum policy, perhaps decreasing term, to cover the mortgage, and family income benefit to replace earnings, as our guides to how much cover you need and mortgage life cover explain.
How much income to choose
To decide on the level of income, think about the gap your death would leave in the household budget. Consider the everyday costs your family would still need to meet, such as housing, food, bills and childcare, and how much of that your income currently covers. The aim is to choose a regular payment that would keep the household running, alongside any other cover you have for debts like the mortgage.
Tax and the payments
The regular payments from a family income benefit policy are generally paid free of income tax, like other life insurance payouts. As with any life insurance, writing the policy in trust can help ensure the payments reach the right people promptly and can be kept outside your estate for inheritance tax, as our guide to putting life insurance in trust explains. The tax treatment is part of what makes it an efficient way to provide for a family.
Who it suits
Family income benefit suits families, particularly those with children, whose main worry is replacing lost income to keep the household going if a parent died. It is well matched to the years when children are dependent and a steady income matters most. It may be less suitable if your priority is a one-off lump sum to clear a large debt, in which case a standard term policy, or a combination, may fit better.
An example of how it pays
Suppose you take out family income benefit providing £1,500 a month over a 20-year term. If you died after five years, your family would receive £1,500 a month for the remaining fifteen years. If instead you died in year eighteen, they would receive it for the final two years. The cover quietly does its job of replacing income for whatever remains of the term, which is why the total paid is larger for an earlier claim and smaller for a later one.
Index-linked family income benefit
Because the payments can run for many years, inflation can erode their value. To address this, some family income benefit policies are index-linked, so the income rises over time to keep pace with rising prices. This costs a little more but helps ensure the payments still meet your family's needs years into a long claim. If you are protecting a young family over a long term, inflation protection is worth weighing up against the higher premium.
Combining income and lump sum cover
Family income benefit does not have to be an either-or choice. Many families pair it with a lump sum policy: a lump sum, perhaps decreasing term, to clear the mortgage, and family income benefit to replace day-to-day earnings. This combination covers both the big debt and the ongoing household budget, often more efficiently than one very large lump sum policy, as our guide to how much cover you need helps you plan.
Setting the right term
As with other term cover, the length of a family income benefit policy matters. People usually set it to run until their children are likely to be financially independent, so the income would support the family throughout the dependent years. Setting the term too short risks the cover ending while your family still relies on it. Matching the term to the period of real need ensures the policy provides income for exactly as long as it would be required.
For families whose biggest worry is simply keeping the household running, family income benefit offers a straightforward and affordable way to replace a lost income for as long as it would actually be needed.
In short
Family income benefit is term life insurance that pays your family a regular income, rather than a lump sum, from your death until the end of the policy term. It is often cheaper than equivalent lump sum cover because the total payout falls over time, and it replaces income in a form families find easy to manage. It suits households focused on maintaining day-to-day finances, and is often used alongside lump sum cover for the mortgage.
Where to get help and next steps
Work out your needs with how much life insurance you need, consider it alongside mortgage life cover, and read about the protection gap. This is general information, not financial advice.