Family income benefit (FIB)

What is family income benefit and how does it work?

Family income benefit is a type of life insurance for parents and families.

The key difference between FIB and standard life insurance is that rather than your loved ones receiving a lump sum of money, they’ll get monthly payments instead.

If you die, the policy will pay out a regular, tax-free income up until a specified date to replace your lost income.

For example, if you take out a 20-year term policy and a claim is made 10 years into it, it’ll continue to pay out for another 10 years. If the claim was made 15 years in, payouts would only continue for five years.

You get to decide how much of your income you'd like to be covered, but the larger the monthly payout, the higher your premiums.

Disadvantages

This is not a savings or investment product; if nobody makes a claim during the course of the policy it will pay nothing at the end.

It also offers a decreasing level of cover. For example, if the policyholder were to die a month before the end of the term, then the policy would only pay out for one month.

In contrast, a level term life insurance product could still pay out the full, agreed lump sum. Though that’ll still be restricted by the term.

Who is family income benefit for?

It could suit families with young children as it provides a regular income to cover the cost of living expenses, with potentially cheaper premiums than other life insurance policies.

Family income benefit with critical illness cover

As well as the life insurance element of family income benefit, you may also be offered critical illness cover integrated with your policy, for an additional fee.

If you don’t want critical illness cover with your FIB, you don’t have to have it. Or, you could take out separate critical illness insurance – expect this to cost more than if you buy it alongside FIB or life insurance though.

Joint family income benefit plans

It’s possible to take out a joint policy. Just like joint life insurance, it’ll only pay out the once – usually after the first policy holder dies.

It’s usually cheaper than you both having separate cover, but the pay out might be less than one from a separate policy.

Inflation and life insurance

When you’re working out how much cover you need, you'll have to try and take inflation into account - it'll eat into the real value of the payout in years to come as the cost of everyday items increases. It's sometimes possible to index-link a policy, so you can offset the effects of inflation. That means it’ll hold todays value in real terms, years down the line.

Alternatives and additions to family income benefit

As well as other life insurance options available, such as decreasing term life insurance cover and level term policies, it's worth thinking about critical illness cover and income protection insurance.

Take into account any death in service benefits you may have through your job, but remember that these will probably finish if you lose or leave your job.

You could also self-insure, using the money you would have paid in premiums to build up your own savings. But, while everyone should have an emergency savings pot, you'd need a very significant amount to match the potential pay outs offered by life protection options.

If you need help working through your options, speak to a professional financial advisor for impartial advice.