Family income benefit insurance explained

What is family income benefit insurance?

Family income benefit is a special type of life insurance, which is a decreasing policy. This means that the amount that is paid out decreases over time. 

Generally, with life insurance, your loved ones will receive a lump sum payout from your policy when you die. It's then up to them to handle that money as they wish. 

With family income benefit, your loved ones will instead be paid a regular income for a set period to replace the lost income. This could be a more manageable and affordable option that will ensure ongoing financial support for your dependants. 

Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms and conditions of an insurer before committing to any financial products.

How does family life insurance work?

When you take out a family income benefit policy, you stipulate what income you would need your loved ones to receive, and over what time period. The insurer will then work out what monthly premium you would need to pay in order to secure that cover.

At the outset, you need to work out what sort of income your family would need to be financially stable in the event that you die.

Let's say your family would need £2,000 a month for the next 30 years in order to be secure.

• If you died in the first year of the policy, the insurer would pay out that sum for the full 30 years of the policy
• If you died in year 25, they'd receive £2,000 a month for the final five years
• If you die after the term of the policy has finished, there will be no monthly payout 

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How much will family life insurance cost?

Family income benefit is generally seen as the most affordable form of life insurance available.

This is because the insurer is less likely to have to pay out a significant sum, and even if they do, they won't need to pay it all in one go.

In comparison, a term life insurance policy pays out the entire sum agreed should you die during the term, whether in the first year or the last, while a whole-of-life insurance policy guarantees a payout as long as you uphold the policy.

We have collected illustrative quotes for family income benefit insurance provided by LifeSearch, tailored to non-smokers with no health issues, non-dangerous occupations and with a term of 20 years. The higher the coverage amount and the older you are, the more you can expect to pay monthly. 

The quotes provided are intended to give you a rough idea of the potential costs of family income benefit insurance. Actual premiums may vary based on various factors, including your health, lifestyle, and the specific terms of the insurance policy.

For a 30-year-old:

For a 40-year-old:

For a 50-year-old:

Pros and cons of family life insurance

There are advantages and disadvantages to family income benefit. Which option works best will depend on your family's finances and how you want the policy to support them.

Pros

• Getting money sooner can help you deal with new, additional costs such as childcare, mortgage payments and household bills. 
• A regular sum can make it easier to handle budgets and bills at a difficult time.
• You can set the income to last until you expect the children to be financially independent.

Cons

• While the monthly payment may be enough to cover the mortgage each month, it will likely take many years to pay off the home loan entirely.
• The surviving partner will be left to handle decisions such as when to remortgage.
• The payout your loved ones receive falls significantly over the course of the term.

If you want to ensure that your family receives a more substantial payment, no matter when you die during the course of a life insurance policy, you will be better off with a term life insurance or whole-of-life insurance policy. If it's just you and your partner, you may be interested in a joint life insurance policy. 

• Find out more: joint vs single life insurance: which is best?

Can I get a joint family income benefit policy?

Family income benefit is available on both an individual and joint basis.

If you go for a joint policy, there will only be one set of income payments, usually after the first policyholder dies, so long as they die during the term of the policy.

As a result, while two individual policies will be more expensive than a joint family income benefit policy, separate policies would ensure that there are two sets of income payments should both parents die during the term of the policy.

• Find out more: are multiple insurance policies worth it?

What happens to a family income benefit policy in a divorce?

During a divorce, the outcome of a family income benefit policy can vary based on what the couple or a court decides. If one spouse owns the policy, they might keep it, transfer it to the other spouse, or cancel it as part of the divorce agreement.

The person named as the beneficiary on the policy may also be changed. For instance, the policyholder might switch the beneficiary to a child or another person who will need financial support.

The couple might decide to keep the policy to ensure that there is money available for their children if something happens to the policyholder. Sometimes, a court will order one spouse to maintain the policy or get a new one to ensure support for dependents.

Another point to address is who will pay for the policy. The couple needs to decide whether one person will cover the premiums or if they will split the cost.

Does family income benefit insurance have any exclusions or restrictions?

Family income benefit insurance can have exclusions and limitations. Common ones could include:

• Pre-existing conditions: if you had a health condition before taking out the policy, it might not be covered.
• Dangerous activities: injuries from high-risk activities or occupations might not be covered.  
• Waiting periods: there might be a waiting period before benefits start, and certain conditions may not be covered immediately.
• Specific illnesses or accidents: some policies might exclude coverage for certain illnesses,  such as cancer in its early stages or if diagnosed within a specified time frame after taking out the policy. For instance, if cancer is diagnosed within the first 12 months of the policy, the insurer might not pay out. 
• Self-inflicted injuries: claims resulting from self-harm or suicide may be excluded.

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• Find out more: life insurance for pre-existing conditions 

Are my premiums guaranteed on a family life insurance policy?

When you take out family income benefit, you will usually be given a choice between guaranteed and reviewable premiums.

With guaranteed premiums you will know for certain exactly what your payments will be for the entire term of the policy – they won't ever change.

With reviewable premiums, while they may cost less initially, the insurer will review them on a regular basis and may choose to increase them. As such, there is a danger that they may become unaffordable at some point.

• Find out more: what is critical illness cover?

Are my family income benefit payments index-linked?

It's important to consider the impact of inflation when you're working out what sum your loved ones would need to get by each month should you pass away. With the cost of living constantly rising, the money they receive may need to go further as the years pass.

You have an option to increase the value of your family income benefit with inflation to ensure that the value of the monthly payout meets rising costs. This will likely increase the cost of your premiums at the outset.

Can I write family life insurance in trust?

All life insurance policies can be written in trust, including family income benefit. This is a legal arrangement, that is absolutely free, and essentially means that the policy is viewed as being outside of your estate when you pass away.

This should mean that your loved ones receive the money quicker, as it sidesteps the probate process.

Find out more in our guide to how to write life insurance in trust.

Family income benefit FAQs

How long does family income benefit pay out for?

You decide the term. If you die within that term, your family income policy will pay out from then until the end of the term.

Is family income benefit cheaper than level term?

Family income life insurance is cheaper than level term life insurance. It is a type of decreasing term insurance as the total amount that would be paid out if you die later in the term would be lower.

Is family income benefit increasing term?

You can set the monthly benefit to increase so the monthly payout should you die rises each year. However, if you die in year 20 of a 25-year term, although the monthly payments would be higher than at the start of the policy, the total amount paid out would still be lower.

Is family income benefit taxable?

Family income benefit is not taxable.

Can family income benefit be paid as a lump sum?

No. It is a monthly payment until the end of the term.

Does family income benefit cover critical illness?

Critical illness cover can be added to a life insurance policy or bought separately.

This type of cover provides a lump sum payment if you are diagnosed with a specified serious illness, such as cancer, heart attack or stroke, helping to cover medical expenses and other financial burdens during your treatment and recovery.

How does it differ to income protection?

Family income benefit will provide your loved ones with a monthly payout if you pass away. Income protection insurance, on the other hand, will pay out a monthly amount if you are unable to work, perhaps due to illness.

• Find out more: best income protection insurance in the UK 2026