Family income benefit
A simpler, cheaper way to leave your family a regular monthly income if you die during the policy term. Often the right answer when a lump sum looks too big to manage.
Family income benefit is a form of life insurance that pays a regular monthly amount, tax-free, for the rest of the policy term, instead of a single lump sum on death. It is usually cheaper than equivalent level-term cover and easier for a surviving partner to budget around. The downside: it pays less, in total, the later in the term a claim is made. For families whose primary worry is "could my partner pay the bills next month if I died?" it often fits the need better than a lump sum.
Who this is for
- You have young children and want to be sure your family could cover monthly bills, school fees and childcare if you died.
- You want life cover but a six-figure lump sum feels difficult for a surviving partner to manage.
- You already have decreasing-term cover for the mortgage and need income cover on top.
- Your budget rules out the level-term cover you would otherwise prefer; family income benefit gives similar protection at lower cost.
How family income benefit works
You set a monthly amount you want your family to receive (typically £1,500 to £4,000 a month, tax-free) and a term (often 20 to 25 years to cover the children to adulthood). If you die during the term, the policy pays that monthly amount until the end of the term. If you die in year three of a 25-year policy, the family receives the income for 22 years. If you die in year 22 they receive it for three years. Premiums are level for the term.
Why it costs less than level-term life cover
The total potential pay-out reduces over time, so the insurer's exposure shrinks too. A £200,000 level-term policy keeps that £200,000 sum assured for the whole term; a family income benefit policy at £1,500 a month for 25 years has total exposure of £450,000 in year one and £18,000 in the final month. Cheaper to insure, especially over long terms.
When it is the right answer
Three situations in particular: families with young children where ongoing monthly income matters more than a one-off lump sum; clients whose budget cannot stretch to the level-term sum assured they would prefer; and as a top-up to decreasing-term mortgage cover, so the family clears the mortgage and has income on top.
When it is not
If the priority is clearing a fixed lump-sum debt (the mortgage, a director's loan), use level-term or decreasing-term life insurance. If the priority is paying for a single large item (private school fees fully prepaid, university), a level lump sum is more flexible. We model both routes side by side.
Indexation
You can choose to index-link the monthly benefit so it rises with inflation each year, in exchange for a slightly higher initial premium. For 25-year policies covering young families this is usually worth it; the same £2,000 a month buys far less in 2046 than today.
How Major Money Matters helps
Specific things we do for this product. No generic platitudes.
Model the right product mix
We model family income benefit alongside decreasing-term and level-term life cover so you see the trade-off in pounds and pay-out shape, not just price.
Right amount, right term
We work out a sensible monthly benefit by mapping your household budget, then size the term to your youngest child reaching 21, or your mortgage end, whichever is later.
Trust set up at outset
Family income benefit pays out cleanest when written in trust. Trust documentation done alongside the application, ten minutes, free.
Combine with critical illness if appropriate
Some insurers add critical illness as a rider on family income benefit, paying a lump sum on diagnosis. We compare insurer pricing on combined and standalone routes.
Frequently asked questions
How is family income benefit different from a regular life insurance policy?
Standard life insurance pays a single lump sum on death. Family income benefit pays a regular monthly amount instead, until the end of the policy term. Same risk insured (death), different pay-out shape.
Why is it cheaper than level-term life cover?
Because the insurer's total potential exposure shrinks over time. Each year that passes is one less year of monthly payments owed. Equivalent level-term cover keeps full exposure for the entire term and so costs more.
Is the monthly pay-out taxable?
No. The monthly income paid out by a family income benefit policy is tax-free, the same treatment as a lump sum from regular life cover.
Can I have family income benefit alongside mortgage life cover?
Yes, and that is often the cleanest structure. Decreasing-term life cover clears the mortgage; family income benefit gives the family a monthly income on top to live on.
What happens if I die towards the end of the term?
The family receives the monthly amount for the remaining term only. If you die with two years left on a 25-year policy, the family gets the income for two years, then the policy ends.
Can the monthly amount rise with inflation?
Yes, by adding indexation at outset. Premiums rise modestly each year, but so does the benefit. For long-term cover on young families it is usually worth the extra cost.
Related
Other protection products that often pair with this one.
Life insurance
A lump sum on death, written in trust, sized to clear the mortgage. Often the least expensive way to cover a repayment mortgage.
Read moreIncome protection
A monthly income, tax-free, if illness or injury stops you working. Replaces 50 to 70% of salary. The most overlooked piece of protection.
Read moreCritical illness cover
A tax-free lump sum on diagnosis of a serious illness. Wording varies wildly between insurers; comparing price alone misses the point.
Read moreWhat our clients say
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Compare family income benefit against level term
A quick 15-minute call. We will price both routes against your budget and tell you which one fits your family. No pressure, no panel of three insurers.
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