Family Income Benefit (FIB) - A Complete Guide
Family income benefit (FIB) can provide a regular payout for your family if you die during the term of the policy. Find out more about how this form of insurance works and whether it may be suitable to you and your family…
What is family income benefit insurance?
Family income benefit is a type of life insurance designed specifically for parents and families.
It is seen as an alternative to level term life insurance and aims to replace lost income if the policyholder dies during the term of the policy.
The key difference between term life insurance and family income benefit is that, while level term insurance pays out a one-off lump sum if the insured person dies, family income benefit pays a monthly income.
How does family income benefit work?
When taking out a family income benefit policy, you specify the level of monthly income your loved ones will need and over what time period. The insurance company will then calculate a monthly premium based on factors such as your age, medical history, occupation, etc.
It is important at this stage to carefully consider how much your family would need each month in order to be financially stable should you pass away.
For example, let’s say you decide that your family would require £2,000 every month for the next 25 years to be financially secure in your absence. If you die after five years of the policy being in effect, then the insurance company will pay out £2,000 every month for the remaining 20 years. If you were to die 20 years after the inception of the policy, the £2,000 will be paid every month for the remaining five years.
If you pass away after the policy term has finished then there will be no monthly payout, as your cover under that particular policy will have expired.
Who is family income benefit for?
This form of life insurance is most suited to families with young children, as it provides a regular income that can cover living expenses in the event of the death of a parent and comes with potentially cheaper premiums than other life insurance policies.
Managing the large lump sum payout that comes with other life insurance types can be challenging for families who have recently lost a loved one – involving budgeting and investments to make the money last for a long period. As well as this, the loss of a parent can lead to extra costs, such as childcare.
Dealing with all this can be a complicated and stressful process for bereaved families, so receiving a regular monthly payout instead is often a more appealing option. This more manageable payout makes it much easier to stick to budgets and stay on top of the household bills and expenses.
How much does family income benefit cost?
Family income benefit is typically viewed as the most cost-effective form of life insurance available, as the insurer is less likely to have to pay out a large sum and even if there is a large payout, it will be spread over several years.
In contrast, a term life insurance policy will pay out the entire sum insured if you die during the term of the policy – whether you die in the first year or the last.
Whole-of-life insurance policies, meanwhile, are guaranteed to pay out at some point, so premiums tend to be higher as a result.
However, as with all forms of life insurance, the amount you pay for family income benefit will depend on a variety of different factors, including your age, your health and lifestyle and the amount of monthly income you want the policy to pay out.
Joint family income benefit plans
Family income benefit plans are also available to take out as a joint policy. As with joint life insurance, the policy will only pay out once (after the first named policyholder dies), but it is usually cheaper than both parents taking out separate cover.
Family income benefit with critical illness cover
To provide an extra layer of cover, critical illness cover can also be added to your family income benefit policy for an additional fee. This means you will receive a payout if you are diagnosed with a serious illness listed on the policy's terms – so your family will not be in financial difficulties if you are unable to work due to a specified illness.