Life insurance pays out if you die while you are insured but the type of payment and period of payment can be determined by which type of life insurance policy you choose. Family income benefit life insurance policies are specific type of life insurance and we explain how it works and in which situations it is suitable.
What is family income benefit insurance?
Family income benefit which can sometimes be referred to as FIB is a cost-effective form of life insurance that pays out a tax-free income to your beneficiaries if you die. It can be preferable to level-term life insurance policies that pay out a one-off lump sum. Most people take out a family income benefit life insurance policy to replace a loss of income or to ensure that a regular payment can be continued to be paid in the event of death for a period of time.
Family income benefit cover is a term life insurance policy so it will cover your life for a specific period of time which is referred to as the term. It ensures that should you die during the term, the amount that you insured will be paid regularly to your beneficiaries from the point of claim until the policy term ends.
When comparing family income benefit quotes, you need to decide how much cover you want and over how long you want it. As the proceeds of a family income benefit are paid out tax-free you do not have to allow for any deductions as the claim amount will be paid in full.
Why is family income benefit life insurance cheaper than term life insurance?
A family income benefit policy will pay out a set monthly income from the point of a claim until the end of the policy term. The longer a policyholder lives, the lower the total potential payout as there is less and less time between a potential claim and the end of the policy term.
It is easiest to understand how a family income benefit policy differs from a term life insurance policy by looking at examples.
Person A buys family income benefit life insurance for the amount of £2,000 per month over 20 years.
- If Person A dies immediately after this policy is started, the amount of money that will be paid out over 20 years is £2,000 each month for 20 years (£2,000 x 12 months x 20 years) which equals £480,000 altogether.
- If Person A died 10 years into being covered, the same amount of money will be paid each month but will only be paid for 10 years as the policy will only have another 10 years left until it ends. In this scenario, the same policy would pay out £2,000 each month for 10 years (£2,000 x 12 x 10) which equals £240,000.
Person B buys level term life insurance for the amount of £300,000 over 20 years.
- If Person B dies immediately after starting their level term life insurance cover, the policy will make one payment of £300,000 as the policy only pays one lump sum upon death.
- If Person B dies 10 years into being covered by the same policy, it will still pay £300,000 as the policy is designed to pay the lump sum amount regardless of when death happens as long as it happens before the policy term ends.
For both, a level term life insurance and a family income benefit policy, there is no claim paid if you die after the term of the policy ends.
However, the key difference is in the cost of a family income benefit life insurance policy compared with a level term life insurance policy. A family income benefit policy can be much more cost-effective in providing a large amount of life insurance at the outset as long as you are happy for that amount to reduce as you survive.
How much does family income benefit cost?
The cost of family income benefit can be attractive to those who need a large amount of cover in case they die early in the policy term but are happy for the cover to reduce, the longer they survive.
A common situation that this will suit is that of parents who wish to cover themselves in case they die before their children reach independent ages. If you were to die whilst your child was very young, they would need to be supported over a much longer period of time than if you were to die when your children were teenagers, for example.
So, in this situation, a family income benefit policy may be the perfect solution. Let's assume that you would like to make a provision of £2,000 per month to be used to raise your children in case you die and that you want them to be covered for 20 years.
The family income benefit solution for this would be a £24,000 per annum family income benefit life insurance over 20 years. On the other hand, if you were to choose to buy a level term life insurance policy to do the same, you would have to choose £480,000 level term life insurance over 20 years so that just in case your death happened early, there would be sufficient money from your life insurance payout to provide £2,000 per month for 20 years.
Below, we have compared the cost of the family income benefit life insurance of £24,000 over 20 years with that of £480,000 level term life insurance over 20 years. We have also shown the difference in cost based on what age you are when you start either type of life insurance. The quotes are based on smoker and non-smoker rates but assume that you have no adverse health concerns.
Monthly cost of Term Life Insurance v Family Income Benefit - Non Smoker
| Your age when you start the policy | £24,000 per annum family income benefit over 20 years | £480,000 level term life insurance over 20 years |
| 20 | £6.07 | £7.35 |
| 30 | £8.82 | £12.84 |
| 40 | £15.67 | £27.41 |
| 50 | £37.08 | £66.50 |
Monthly cost of Term Life Insurance v Family Income Benefit - Smoker
| Your age when you start the policy | £24,000 per annum family income benefit over 20 years | £480,000 level term life insurance over 20 years |
| 20 | £8.65 | £11.70 |
| 30 | £13.20 | £22.04 |
| 40 | £31.37 | £59.19 |
| 50 | £92.95 | £163.21 |
Should I get family income benefit insurance?
There are two key benefits to choosing a family income benefit life insurance policy and they are the cost and the ease of managing an income for the recipients as opposed to a lump sum of money. You can also include critical illness cover with your life insurance so that it pays out if you diagnosed with a listed serious illness but this will cost much more than simply being covered for death.
What to consider when choosing family income benefit life insurance
For many families and partners who may need an ongoing income for a period of time, it can be far less daunting and more reassuring to receive a regular income. Furthermore, some beneficiaries of life insurance may feel that they don't know what to do with a lump sum of money, having had no experience in dealing with financial affairs such as investments. It is also much easier to work out how much money your family or partner might need on a monthly basis if you were to die prematurely - it can be a little more difficult to calculate how much they would need as a lump sum of money.
If you consider these differences and feel that you would prefer to leave behind a secure and regular payment for a period of time if you were to die then you should get a family income benefit life insurance policy. A family income benefit policy is a good policy to consider if you want to keep costs low and ensure that any beneficiaries can continue with the same lifestyle that they have become accustomed to. While term life insurance may provide more cover later in the policy term, it comes at a cost.
The best way to understand whether you should take out a family income benefit policy is to speak to a specialist life insurance broker, as they will be able to assess your individual circumstances and make a recommendation, as well as provide independent quotes. We explain more about how to arrange this later in this article.
The hope is that you will never need to claim on a life insurance policy and in fact, if you survive the policy term, neither the term life insurance or family income benefit policy will payout, irrespective of how much you are insured for.
Which insurance companies provide the best family income benefit insurance quotes?
Most life insurance companies will provide quotes for family income benefit insurance. A popular way of taking family income benefit insurance is to include it as an 'add on' plan or as part of a 'menu' policy. As family income benefit is so cost-effective, it can be a very inexpensive 'add on' when taking other types of life insurance or critical illness cover or when covering your mortgage.
Popular insurance companies that provide this type of cover are Legal & General, Royal London, Aviva and LV=. It is however very difficult to find which company provides the cheapest family income benefit quotes, as online life insurance calculators are unable to provide quotes for multiple benefits. We explain in the section below how to get the cheapest family income benefit quotes, including how to get up to £100 cashback.
How to get the cheapest and best family income benefit Quotes
The best way to guarantee the best and cheapest family income benefit life quotes is to speak to an independent life insurance specialist*. Online life insurance calculators will only ever be able to give you a basic 'guideline' price, whereas an insurance specialist can tailor a quote to your individual circumstances.
An independent specialist will be able to:
- Help complete your application forms as well as chase up the application with the insurance company
- Give independent advice on the best type of policy and ensure that you are purchasing the correct amount of cover
- Search the whole of the market (online life insurance comparison sites do not always check the whole of the market, meaning you could be missing out on the cheapest quotes)
- Help you to complete a trust form to ensure the proceeds are paid to the right people and without the need to pay inheritance tax or go through probate
- Understand your medical history and put you in touch with the insurance company that will provide the best quotes post-underwriting. For example, the cheapest insurer may increase your premiums based on your answers to the health questions, whereas another may not. The cheapest pre-underwriting quote, therefore, is not always the best
We have personally vetted the services of a specialist life insurance broker* that will be able to do all of the above for you. The firm employs strong ethics and will only ever offer a policy if it is the best policy to suit your needs; something we witnessed for ourselves when we visited their offices recently. To speak to an adviser, with no obligation to take things further, just fill in the form via the above link. If you are happy with their service and end up taking a policy, you will qualify for up to £100 cashback.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article - LifeSearch
