FAMILY INCOME BENEFIT

What is family income benefit?

Provides a tax-free monthly income

Helps long-term family budgeting

Could pay out up to £5,000 a month (this can be more or less depending on the provider)

Term length up to 40 years

Low-cost premiums from just 20p-a-day

Family income benefit (also known as FIB or family income protection), is an alternative form of life insurance.

You’ll pay a monthly premium for your cover but, unlike traditional forms of life insurance, your loved ones will receive ongoing monthly income payments (rather than a lump sum) upon your passing.

These family income benefit payments will run from the day the claim is accepted until the end of your policy.

Payments are tax-free and can help to replace your income so that your loved ones can continue with their current lifestyle.

How does family income benefit work?

Family income benefit works similarly to other forms of life insurance, where you’ll choose how much you’d like to be paid out to your loved ones and how long you’d like to be covered for.

The difference is, instead of a lump sum, your loved ones will receive monthly income payments.

Upon your passing, loved ones can make a claim and payments will commence for the remainder of your policy term.

These payments can help enable your loved ones to sustain their current lifestyle when you’re no longer around, without having to make drastic cutbacks.

If you don’t pass away within your policy term, no pay out will be made and your policy will simply expire.

Get your Family Income Benefit Cover quote

How much family income benefit do you need?

How much family income benefit cover you need will depend on your personal circumstances and what financial commitments you’d like to cover for your loved ones.

Family income benefit is ideal for young families who want to help protect ongoing family living costs.

It can help to replace lost income after your passing and allow your loved ones to continue with their current lifestyle.

Therefore, when working out how much cover you need, it’s important to consider:

What financial commitments you have - It’s wise to consider both your current financial commitments, as well as any costs that are likely to occur in the future
How long your cover should last - If you have a mortgage or long-term rental agreement, it’s wise for your policy to mirror this to allow loved ones to continue making payments and remain in the family home. You may also wish to align your policy with when your children reach financial independence

Mortgage payments

Household bills

Family living costs

Debt/loan payments

Childcare

Transportation

Higher education costs

By adding together all your financial commitments, you should find the sum of money your loved ones are likely to need to help cover all essential costs.

How are family income benefit premiums calculated?

Family income benefit premiums are calculated in the same manner as other forms of life insurance; based on your likelihood of making a claim.

During the application you’ll be required to provide key information, which will allow insurers to assess your level of risk.

This information includes details about yourself as well as details about your policy, including:

Age
Smoking status
Medical history
Lifestyle
Monthly income you’d like paid out
Policy term

When taking out family income benefit, you have the option of guaranteed premiums or reviewable premiums.

Guaranteed premiums will remain the same throughout the lifetime of the policy, meaning the price you pay doesn’t change.

Reviewable premiums can often be cheaper initially, but your insurer has the right to increase them throughout the term of your policy (this can be down to a range of factors such as your age or change in risk).

How much is family income benefit?

The price you pay will vary depending on your personal circumstances.

Is family income benefit taxable?

No, family income benefit payments are tax-free.

Inheritance tax is charged at 40% on anything that takes an estate (your savings, property, and possessions) over the threshold of £325,000.

With traditional life insurance policies, a lump sum payment can easily take an estate over this amount and make it subject to inheritance tax.

As family income benefit provides monthly payments, rather than a lump sum that gets consolidated to your estate, they won’t be affected by inheritance tax.

Family income benefit payments also won’t be subject to income tax.

Can I get family income benefit with critical illness cover?

Yes, it’s possible to add critical illness cover to a family income benefit policy for an additional cost.

Critical illness cover can allow you to make an early claim on your policy if you’re diagnosed with a life-threatening illness.

In this scenario, you and your loved ones would start receiving payments from the point of your claim being made until your policy expires.

These funds could help to replace any lost income if you’re unable to work, help to maintain family living standards and/or pay for any private medical treatments.

Once a critical illness cover claim has been made, your loved ones won’t be able to make another claim on your policy upon your passing.

Should family income benefit be written in trust?

You can write a family income benefit policy in trust.

Writing your policy in trust is the process of detaching its value from your estate.

With traditional life insurance, this is often done to avoid/minimise 40% inheritance tax for your loved ones - as It’s easy for the lump sum pay out to take your estate over the £325,000 threshold.

However, in the case of family income benefit, as payments are made monthly they aren’t liable for inheritance tax.

It can still be worth writing your family income benefit policy in trust to benefit from the following:

Avoid/minimise a lengthy probate process
Have better control over your pay out

Can I take out joint family income benefit?

Yes, it's possible to take out family income benefit on a joint basis through Mortgage Generator Advice.

A joint policy could help you to save money as only one premium is paid between both policyholders.

However, in this instance, monthly payments will only be made after one partner passes away (usually the first).

Once the policy comes to an end, payments will cease, and the surviving partner will no longer be covered.

This means the surviving partner will need to secure a new policy, potentially at an older age, which could result in higher premiums.

Taking out two single policies may be slightly more expensive but will provide two separate sets of monthly payments if both mum and dad were to pass away.