Family Income Benefit UK: Affordable Life Cover Guide

What Is Family Income Benefit?

Family Income Benefit (FIB) is a type of term life insurance. Instead of paying a one-off lump sum when you die, it pays your family a regular, tax-free monthly income from the date of your death until the policy term ends.

For example, if you take out a 20-year FIB policy and die in year 5, your family receives 15 years of monthly payments. If you die in year 18, they receive 2 years of payments.

This makes it ideal for replacing your income and covering ongoing family expenses — mortgage payments, utility bills, food, school costs, and childcare.

How Does Family Income Benefit Work?

Here's how a typical FIB policy works:

• You choose a monthly benefit amount (e.g. £2,000/month) and a policy term (e.g. 20 years)
• You pay a fixed monthly premium for the duration of the term
• If you die during the term, your family receives the monthly benefit for the remaining term
• If you survive the term, the policy ends and nothing is paid out
• Payments are tax-free

Some policies offer the option to take a lump sum instead of monthly payments, though this is usually worth less in total due to discounting.

FIB vs Standard Life Insurance

The key differences:

• Level-term life insurance — pays a fixed lump sum whenever you die during the term. More expensive because the potential payout stays the same throughout.
• Decreasing-term life insurance — pays a lump sum that reduces over time (designed to match a repayment mortgage). Cheaper than level term.
• Family Income Benefit — pays monthly income for the remaining term. The total potential payout naturally decreases over time, making it the cheapest option.

Example comparison for a 35-year-old non-smoker, 20-year term:

• £200,000 level-term life insurance: ~£12–£18/month
• FIB paying £1,000/month (max payout £240,000): ~£8–£12/month

FIB is significantly cheaper because the insurer's maximum liability decreases each month.

Who Should Consider FIB?

FIB is particularly valuable for:

• Parents with young children — covers ongoing childcare, school fees, and day-to-day costs until children are independent
• Families relying on one income — replaces the breadwinner's salary
• Mortgage holders — set the monthly benefit to cover your mortgage payment plus living costs
• Those on a budget — FIB provides substantial cover at a fraction of the cost of level-term life insurance
• Alongside other cover — use FIB for income replacement and a separate lump-sum policy to clear the mortgage on death

How Much Cover Do You Need?

To calculate the right level of FIB, work out your family's monthly essential costs:

• Mortgage or rent payments
• Council tax, utilities, and household bills
• Food and groceries
• Childcare or school fees
• Transport costs
• Insurance premiums

Then subtract any other income your family would receive (partner's salary, death-in-service benefits, state benefits). The gap is the amount of FIB cover you need.

Set the policy term to when your youngest child would become financially independent — typically age 18 or 21 (through university).

What Affects the Cost?

FIB premiums are based on:

• Your age — younger applicants pay less
• Smoker status — smokers pay significantly more
• Health and medical history
• Monthly benefit amount — higher benefits mean higher premiums
• Policy term — longer terms cost more
• Indexation — choosing payments that increase with inflation costs slightly more but protects against rising costs

FIB is one of the most affordable forms of life cover. A healthy 30-year-old non-smoker could get £2,000/month of FIB cover for a 25-year term for as little as £10–£15/month.

Combining FIB With Other Protection

For comprehensive protection, many advisors recommend combining FIB with:

• Decreasing-term life insurance — to clear the mortgage on death (separate from the monthly income FIB provides)
• Critical illness cover — a lump sum if diagnosed with a serious illness while alive
• Income protection — replaces your salary if too ill to work (pays while you're alive, unlike FIB)

This layered approach ensures your family is covered whether you die, become seriously ill, or can't work. Speak to us for free, no-obligation protection advice.