A monthly income
instead of a lump sum.

What is family income benefit?

Family income benefit is a type of term life insurance. You choose a monthly benefit and a term, commonly until your youngest child finishes education, or until the mortgage is repaid. If you die within that term, the policy pays that monthly amount to your family every month until the term ends. If you survive the term, it pays nothing, exactly like any other term policy.

The distinguishing feature is the shape of the payout. A conventional policy pays £300,000 once. Family income benefit pays, say, £2,000 a month for the years that remain. The money arrives in the rhythm household bills actually arrive in.

How the monthly payout works

The payout period runs from the date of death to the end of the original term, so the total sum falls as time passes. A twenty-year policy claimed on in year two pays for eighteen years. The same policy claimed on in year eighteen pays for two.

That decreasing total is deliberate rather than a flaw. The reason most families need cover is that children still have to be raised and a mortgage still has to be paid, and both of those obligations shrink as the years pass. The cover falls in step with the need.

Most insurers offer the option to take the remaining payments as a discounted lump sum instead, and many allow the benefit to increase each year in line with inflation, which matters over a twenty-year term.

Family income benefit vs level term life insurance

Level term life insurance pays a fixed lump sum whenever you die within the term. It suits a defined, one-off liability, clearing an interest-only mortgage, or covering an expected inheritance tax bill.

Family income benefit suits a recurring liability, the cost of running a household and raising children. It also removes a genuine practical problem: a grieving family handed a large sum has to decide how to invest it and how much to draw, often at the worst possible moment to be making financial decisions. A monthly income removes that decision entirely.

The two are not mutually exclusive. A common arrangement is a lump-sum policy sized to clear the mortgage alongside family income benefit sized to replace the household income.

Is family income benefit cheaper?

Usually, yes, often noticeably so. Because the insurer's total exposure falls every year, the risk it is pricing is lower than for level cover with the same starting value. For a young family on a tight budget, that difference can be the reason adequate cover is affordable at all.

Your actual premium depends on your age, health, smoker status, the monthly benefit and the term. Any figure quoted before an application is illustrative, not a quote.

Writing the policy in trust

Putting the policy in trust means the payments go directly to the people you name rather than into your estate. That normally keeps the money outside your estate for inheritance tax, avoids waiting for probate, and lets payments start when your family most needs them.

Trusts are straightforward to set up when the policy starts and more awkward later, so it is worth dealing with at the outset. Tax treatment depends on your individual circumstances and may change in the future.