Family Income Benefit Insurance Explained

A Complete Guide to FIB Policies

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By Grace Hickman
Updated on Wednesday 9 September 2020

Parents sat at table with their child

Family income benefit (FIB) is a form of life insurance that can provide a regular monthly income for your family or dependants if you die during the policy term.

Find out more about family income benefit below.

What is family income benefit?

It’s a type of life insurance policy that is designed specifically for parents with young children. It can be viewed as an alternative to term life insurance as it is designed to replace the lost income if a parent passes away during the policy term.

Family income benefit differs from term life insurance in that it pays a monthly income when the policyholder dies, whereas term life insurance will pay out a large one-off lump sum.

How does family income benefit work?

When you take out a family income benefit policy, you set the amount of monthly income your family will need and over what time period. Your premiums will then be calculated based on factors like your age, occupation, medical history and so on.

It is therefore very important to consider how much of a monthly payout your family will need to be financially secure if you were to die.

For example, you may decide that your family would need £1,500 every month for the next 15 years to be financially stable. If you pass away after 3 years of the policy being taken out, then your family will receive that £1,500 every month for the remaining 12 years of the policy term. If you die after 13 years, your family receive the pay ut every month for the remaining two years.

Who should consider family income benefit?

Family income benefit is most suitable for families with young children as it provides a regular payout to cover household bills and expenses if a parent passes away.

Other forms of life insurance offer a large lump sum payout, which can be a challenge to manage for families who have recently lost a loved one. Decisions regarding budgeting for the future and investments can add to the stress during what is already a very difficult time, so the prospect of receiving a simple monthly payment can be a much more attractive option.

A more manageable monthly payout makes it a lot 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 usually cheaper than other forms of life insurance, as the risk to the insurance company is lower because they are less likely to have to pay out a lump sum. Even if there is a large payout i.e. if the policyholder dies early during the policy term, the cost to the insurer will be spread over several years.

With term life insurance, the insurer will pay out the total sum insured whenever the policyholder dies, while with whole-of-life insurance policies there is a guaranteed lump sum payout – so the costs of premiums reflect this risk.

Although family income benefit is typically more cost-effective, the amount you pay in premiums depends on a variety of factors, from your age, health and lifestyle to the level of pay out you require and the length of the policy.

Other factors to consider

Critical illness cover is often sold alongside family income benefit, providing an added level of cover in case you are unable to continue working because of a serious and debilitating illness.

Family income benefit policies are also available to be bought as a joint policy with both parents insured. A joint policy usually only pays out once – so covers both parents but only one death – but usually works out cheaper than if both parents buy separate policies.

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