Protect your family's income with Family Income Benefit

Family income benefit is a type of life insurance that pays out a regular tax-free income, rather than a single lump sum, if you die during the policy term. Instead of your family receiving one payment to manage, they get a monthly amount, similar to a salary, for the remaining years of the policy. The Association of British Insurers classes it as a form of decreasing term cover, because the total amount left to pay shrinks every year you stay alive and the policy runs on.

This matters because most households don't budget in lump sums, they budget in monthly income. A surviving partner managing a mortgage, childcare costs and household bills often finds a predictable monthly payment easier to manage than investing a large sum and drawing it down carefully over 15 or 20 years. It's a close relative of decreasing term life insurance, but instead of the payout reducing in a single number that your family then has to manage, the income itself just continues at a fixed monthly rate until the term ends.

A common mistake is assuming family income benefit and decreasing term cover are identical. They're structured the same way underneath, both track a reducing liability, but decreasing term pays one number on death, while family income benefit converts that same shrinking balance into an ongoing income stream instead.

You choose a monthly income amount and a term length when you take out the policy, for example £1,500 a month over 20 years. If you die at any point during that 20 year term, your beneficiaries start receiving £1,500 a month, tax-free, for whatever's left of the term. Die in year 8 and your family gets 12 years of payments. Die in year 19 and they get one year. This is why premiums are lower than level term cover of the same starting value: the insurer's average payout is far smaller than the headline monthly figure multiplied by the full term, because most claims happen partway through, not on day one.

• Worked example: A 32-year-old sets up £1,500/month over 20 years to match their mortgage term and their youngest child reaching 18. They die in year 8. Their family receives £1,500 a month for the remaining 12 years, roughly £216,000 in total, paid monthly rather than as one sum.
• No payout after the term ends: Unlike whole of life cover, if you outlive the policy term, there's no payout and no value returned. It's pure protection, not an investment or savings product.
• Level or index-linked income: Most insurers let you choose between a fixed monthly amount for the whole term or one that rises annually in line with inflation, which protects the real spending power of the payments over a 20 or 25 year term.

Many buyers structure the term and income amount specifically around a mortgage, which is worth reading about if you're taking cover out alongside a home purchase; see our guide on protecting your mortgage repayments for how the two decisions fit together.

Family income benefit is typically 20-40% cheaper than level term life insurance for the same starting cover amount, because the insurer's actual liability shrinks every year the policy runs. Price depends on your age, smoker status, health, the monthly income you want, and how many years the term runs for. A 30-year-old non-smoker in good health can usually secure meaningful monthly cover for a similar premium to a takeaway coffee each week, while a 50-year-old will pay considerably more for the same income and term, reflecting the higher statistical likelihood of a claim.

The table below shows illustrative monthly premiums for non-smokers taking out £1,000 a month of tax-free income over a 20-year term. These figures move with health underwriting, insurer, and whether you choose level or index-linked income, so treat them as a starting point rather than a personalised quote. Smokers should expect noticeably higher premiums at every age band, reflecting the increased health risk insurers price in.

Family income benefit payments are usually free of income tax and capital gains tax for the person receiving them, because HMRC treats qualifying life insurance proceeds as a death benefit rather than income or investment gain. Where the policy can be caught out is inheritance tax: if you own the policy personally rather than in trust, the payments (or their capital value) can form part of your estate and push it over the £325,000 nil-rate band, creating a 40% inheritance tax liability for your family on top of everything else they're dealing with.

This is the single biggest reason advisers recommend writing the policy in trust from the outset. It's a simple, usually free step your insurer or adviser can set up alongside the application, and it keeps the payments entirely outside your estate. Read more in our guide on writing your policy in trust, which also covers how trusts speed up payout, since money in trust doesn't wait for probate.

The core difference is how the money arrives. Level term life insurance pays one fixed lump sum, say £300,000, whenever you die within the term, regardless of whether that's year 1 or year 19. Family income benefit pays a monthly income for whatever's left of the term, so the total paid out shrinks the longer you survive. That structural difference is why family income benefit is usually cheaper for the same starting protection level, but it also means the total lifetime value of the policy is less predictable for your family to plan around in advance.

Level term suits people who want a single sum for a specific one-off need, like clearing a mortgage balance outright or funding a child's future education costs in one go. Family income benefit suits people who mainly want to replace lost household income month by month. Many households actually combine both: a lump sum from term life insurance to clear the mortgage, plus family income benefit to replace ongoing salary. The table below sets out the key differences side by side.

These two products sound similar because both pay a regular income, but they cover completely different risks. Family income benefit only pays out if you die during the policy term. Income protection pays a regular income if you're unable to work due to illness or injury, typically after a waiting period of 4 to 13 weeks, and it keeps paying until you return to work, reach the policy end date, or the maximum claim period expires. You explore this second risk in more depth in our income protection guide.

• Different trigger: Family income benefit needs death; income protection needs incapacity while you're still alive.
• Different duration: Family income benefit pays for the rest of a fixed term; income protection can pay repeatedly for separate claims over the life of the policy.
• Not mutually exclusive: Most financial advisers recommend holding both, since they protect against opposite outcomes: dying too soon versus being unable to earn while still alive.

Family income benefit tends to suit households where losing one income would create an immediate monthly shortfall, rather than a one-off capital problem. It's particularly well matched to the years when children are young and financially dependent, and it naturally winds down as that dependency reduces, which keeps costs low relative to the protection provided.

• Parents of young or school-age children: The term can be set to run until your youngest child turns 18 or finishes education, matching cover to the years it's actually needed.
• Single-income or majority-income households: If one partner's earnings cover most of the mortgage and bills, losing that income is an immediate monthly problem, exactly what family income benefit is built to solve.
• Homeowners with a repayment mortgage: Setting the term and monthly amount to mirror mortgage payments keeps the household solvent without your family needing to manage a large lump sum themselves.
• Self-employed workers with no sick pay or death-in-service benefit: Without an employer safety net, the loss of income falls entirely on the household. Our life insurance for the self-employed guide covers this gap in more detail.

A simple, workable formula for family income benefit is to add together three things: your outstanding mortgage balance divided by the remaining mortgage term (to get a monthly figure), the number of years until your youngest child becomes financially independent, and the portion of your take-home income the household would need replaced each month if you weren't there. Most people underestimate the third figure by ignoring childcare costs, which can run to £800-£1,400 a month for a single child in full-time nursery care in parts of the UK, on top of everyday bills.

A practical starting point is to calculate your current monthly household outgoings, subtract any income your partner would still bring in, and use the shortfall as your target monthly benefit. Then set the term to match either your mortgage's remaining years or the years until your children are grown, whichever is longer. For a fuller, calculator-led walkthrough of this process across all life insurance types, see how to work out how much cover you need, which includes a free tool to model your own numbers.

Most insurers let you add critical illness cover to a family income benefit policy, which pays out the same monthly income if you're diagnosed with a specified serious illness, such as certain cancers, heart attacks, or strokes, rather than only on death. This roughly doubles or triples the premium compared with death-only cover, because the insurer is now covering two separate risks, but it closes a real gap: illness is statistically more likely than death during a typical working-age policy term. Our family income benefit vs critical illness cover comparison breaks down when adding it is worth the extra cost.

Separately, putting the policy in trust costs nothing extra with most insurers and takes a beneficiary nomination form, but it changes two important things: the payout sits outside your estate for inheritance tax purposes, and your family can usually access the money within days of a claim being approved rather than waiting for probate, which can take several months on a modern estate. Trusts are set up when you apply or shortly after, so it's worth raising with your adviser before the policy goes live rather than retrofitting it later.

Like any protection product, family income benefit is a good fit for some households and the wrong choice for others. Weighing the trade-offs against your own mortgage, dependants and income structure before you compare quotes helps you avoid buying cover that doesn't match how your family would actually need to use the money. Reading the policy document carefully before you commit, particularly the exclusions and any guaranteed insurability options, avoids surprises later if your circumstances change.

• Lower cost: Cheaper than level term for equivalent starting cover, because the insurer's liability decreases every year.
• Matches real spending patterns: A monthly income mirrors a salary, so your family doesn't need to manage or invest a lump sum under pressure.
• No payout after the term: If you outlive the policy, you get nothing back, unlike whole of life cover which always pays out eventually.
• Less flexible for one-off costs: A monthly income isn't well suited to a single large expense, such as clearing a mortgage balance outright in one go.