Family Income Benefit Explained: A Guide for Parents

Family income benefit is a type of term life insurance that pays a regular monthly income, rather than one lump sum, if you die during the policy term. It is designed to replace part of your income while your children grow up and can be a cost-effective way for parents to protect their family’s day-to-day finances.

How does family income benefit work?

You choose a monthly amount and a policy term, for example, until your youngest child turns 21. If you die during the term and a claim is accepted, the policy pays the monthly income from the claim until the end of the term. If a claim happens early in the term, your family receives payments for longer. If it happens near the end, the payments run for a shorter time.

Because the total amount the insurer may pay falls as the term passes, family income benefit is often cheaper than level term cover designed to pay a similar total. Many policies also let the monthly income rise each year, in line with inflation or at a fixed rate, which helps protect its value.

An example

Sam and Priya have two children, aged 2 and 5. They choose family income benefit of £2,000 a month until their youngest turns 21, a 19-year term. If Sam died four years into the policy and the claim was accepted, the policy would pay £2,000 a month for the remaining 15 years, subject to the policy terms. This example is illustrative only.

Family income benefit or lump-sum life insurance?

A lump sum gives flexibility: it can clear a mortgage in one go or be invested. A monthly income can be easier to budget with and mirrors the salary that has been lost. Many families use both, for example, decreasing term cover to repay the mortgage and family income benefit to help with everyday costs such as food, bills and childcare.

Who might family income benefit suit?

• parents of young children who want income to last until the children are independent;

• families who would find a monthly income easier to manage than a large lump sum;

• single parents who are the only earner in the household;

• households where one parent stays at home, because the other parent may need to pay for childcare or reduce their working hours if that parent died.

How much income would your family need?

Look at your household budget and consider what would change if you or your partner died. Think about:

• regular bills, food, transport and childcare;

• whether the mortgage is already covered by a separate policy;

• any death-in-service benefit or pension payments your family might receive;

• how many years until your youngest child is financially independent.

Writing the policy in trust

As with other life insurance, writing family income benefit in trust can help payments reach the right people without waiting for probate. Trusts have legal consequences, so take advice first. See our page on putting a policy in trust.

Protecting the rest of the family plan

Family income benefit only pays out on death and, with many policies, on diagnosis of a terminal illness. If illness or injury stopped you working, income protection or critical illness cover may help. Our guide to life insurance, critical illness cover and income protection compares the main options.

Talk to PMS Mortgages

We help families in Croydon, Purley, Surrey and across the UK put protection in place alongside their mortgage. Read more about family income benefit advice or book a consultation.

Further reading

MoneyHelper: what is life insurance?

General information, not a personal recommendation. Cover is subject to the insurer’s underwriting, terms, conditions and exclusions. PMS Mortgages will explain any advice fee before you proceed.

Trust and tax advice are not regulated by the Financial Conduct Authority. We do not provide tax advice, so take specialist advice where needed.