Family income benefit

Family income benefit explained in plain English

Family income benefit is a form of life insurance that pays out a regular, tax-free monthly income if the insured person dies during the policy term. Instead of receiving one large lump sum, your family gets steady payments for the remaining years of the policy. That predictability can make day-to-day costs easier to manage, especially when budgets are tight and regular bills keep arriving.

Families across the UK are under pressure from rising living costs and uneven income growth. Median household income after taxes and benefits sits around £41,900, yet many households have seen real spending power squeezed by inflation. Families on lower incomes are particularly affected, with many reporting little or no improvement in disposable income since 2023. At the same time, the benefit cap continues to limit support for some households. As of May 2025, about 123,000 households on Universal Credit were capped, most of them families with children, and the cap is higher in Greater London to reflect costs.

Family income benefit aims to reduce one major risk - the loss of a parent or partner who brings in earnings. Projections suggest roughly one in three households will face a severe health event stopping a main earner from working before retirement. While statutory support exists, it rarely covers essentials like rent, council tax, and childcare in full. A regular insurance payout can bridge that gap and help you keep to your budget through a difficult period.

This guide sets out what family income benefit covers, where the limits are, what it typically costs, and how to decide if it is suitable for your household. There is no hard sell here. The aim is to help you understand the product clearly so you can choose cover that fits your needs and your budget.

A steady monthly payout can be easier to manage than a lump sum when bills are due and costs are rising.

What is covered and how it operates

Family income benefit pays a fixed monthly income if the life insured dies during the policy term. You choose the term length and the monthly benefit when you buy the policy. If a valid claim is approved, the insurer pays the monthly income until the end of the term. For example, if you choose a 20-year term and £1,500 per month, and the insured person dies in year 8, the policy could pay £1,500 per month for the remaining 12 years.

Policies are usually written on a level or inflation-linked basis. Level cover keeps the payout the same each year, which can be simpler to plan around. Index-linked cover aims to maintain purchasing power as prices rise. Some policies allow joint cover that pays out on the first death. Others allow you to set up separate policies for each partner.

Common exclusions include non-disclosure of medical information, serious fraud, and in some cases specific causes of death in the first policy period. Suicide may be excluded for an initial waiting period. Pre-existing conditions must be disclosed at application. If you add waiver-of-premium, the insurer may cover your premiums if you are too ill to work, subject to terms. Critical illness options are separate products and only pay for listed conditions.

Claims typically require a completed claim form, the death certificate, policy documents, and proof of identity. Insurers assess the claim against the policy terms and your original application disclosures. Being accurate and complete at the start reduces problems later.

The income stops at the policy end date, even if your family still needs money, so choose your term carefully.

Who may benefit most

Family income benefit suits households that rely on a regular paycheque to meet monthly costs such as rent or mortgage payments, utilities, council tax, travel, and childcare. It can be particularly valuable for single-parent families and those with young children, where a sudden loss of income would be hard to replace. In high-cost areas like London, where the benefit cap is higher but living costs are too, predictable monthly insurance income can stabilise budgets.

If you already hold substantial savings or investments and prefer to manage a lump sum, traditional life insurance might be more appropriate. Likewise, if you have minimal dependants or your mortgage is fully repaid and expenses are low, you may not need this type of cover. The key is matching the payout structure to your household bills and commitments.

Choosing a cover level that fits

1. Basic - level income

   • Fixed monthly payout throughout the term.
   • Usually the lowest premium. Suitable if your costs are stable and you want the simplest structure.

2. Standard - index-linked income

   • Monthly payout rises with inflation, often tied to an index or a fixed annual percentage.
   • Helps maintain purchasing power when prices rise.

3. Enhanced - dual life or family split

   • Separate policies for each partner or a higher income for early years, then tapering.
   • Useful if childcare and housing costs are high while children are young.

4. Optional add-on - waiver of premium

   • Keeps the policy in force if you cannot work due to illness or injury, once a waiting period is met.

5. Optional add-on - guaranteed insurability

   • Allows increases at life events like marriage or the birth of a child without full medical underwriting, subject to limits.

6. Optional add-on - life in trust

   • Not a benefit upgrade but a way to help proceeds bypass probate and reach beneficiaries faster. Seek legal guidance if needed.

Tip: Align the term with key milestones - youngest child finishing education, mortgage end date, or planned retirement age.

What it costs and why prices vary

Insurers do not guarantee specific prices and premiums vary by provider. As a rough guide, many families target a payout that mirrors take-home pay for essential bills, then balance the budget with term length and indexation. Remember that benefit caps and stagnant disposable incomes have left many households with less room to absorb price shocks, so set an affordable premium that you can maintain over time.

Who is eligible and what insurers check

You can usually apply if you are a UK resident within the insurer’s age limits, commonly from 18 up to 60 or 70 at entry, with the policy term ending by a maximum age. Insurers ask about health, medication, height and weight, family history, occupation, and lifestyle factors such as smoking and alcohol use. Medical evidence or GP reports may be requested.

Applications must be accurate and complete. Non-disclosure is a frequent reason for declined or reduced claims. Other common issues include undisclosed hazardous activities or significant medical conditions not mentioned at application. Insurers may decline cover or apply special terms or premium loadings. If you are unsure how to answer a question, ask the insurer for clarification before submitting the form.

From quote to claim - the simple steps

1. Estimate monthly income needed to cover essential bills and commitments.
2. Choose term to match key milestones like mortgage end or children’s education.
3. Decide on level or index-linked income and any optional add-ons.
4. Compare multiple quotes, focusing on terms, exclusions, and total long-term cost.
5. Complete application accurately, disclosing medical history and lifestyle factors.
6. Provide any requested medical evidence promptly to avoid underwriting delays.
7. On approval, place the policy in trust if suitable to speed up payouts.
8. If a claim arises, notify the insurer, submit documents, and follow guidance.

Clear advantages and honest drawbacks

Rising living costs and policy changes matter. For example, the benefit cap rose to £22,020 a year in 2023 and stands higher at £25,323 in Greater London, yet many families are still capped. One in three households may face a serious health event before retirement, and while some Budget reforms could lift incomes short term, tax rises are expected later this decade. Insurance does not fix these pressures, but it can cushion the impact of a sudden income loss.

Key checks before you commit

Read the policy schedule carefully. Check the monthly benefit, the term, and whether the income is level or index-linked. Look for waiting periods, initial exclusions such as suicide during the first year, and any special terms applied after underwriting. Understand the excess or minimum claim period if applicable, the conditions for waiver-of-premium, and how indexation affects both benefits and premiums. Review renewal pricing rules, especially if your policy allows periodic increases. Keep copies of your application and medical disclosures. Small discrepancies can delay or reduce claims, so accuracy protects you and your family.

Alternatives and related options

1. Level term life insurance - Pays a single lump sum. Better if you prefer managing a one-off payout for debt clearing and long-term planning.
2. Decreasing term life insurance - Lump sum reduces over time. Often used for repayment mortgages.
3. Income protection insurance - Replaces a portion of your earnings if you cannot work due to illness or injury.
4. Critical illness cover - Pays a lump sum on diagnosis of specified serious conditions.
5. Whole-of-life insurance - Lifetime cover with a guaranteed payout, typically higher cost.

Frequently asked questions

Q: How is family income benefit paid out? A: If the insured person dies during the term and the claim is accepted, the insurer pays the agreed monthly income until the policy end date. Payments are usually tax free for UK residents.

Q: Can I change the monthly income after the policy starts? A: Some policies offer guaranteed insurability options to increase cover after life events, subject to limits. Otherwise, changes often require new underwriting and may affect premiums.

Q: Should I choose index-linked or level income? A: Index-linked income helps keep pace with rising costs but increases premiums over time. Level income is cheaper at the start but may lose purchasing power during long terms.

Q: What happens if I stop paying premiums? A: Most policies lapse after a grace period if premiums are not paid, and cover ends. You usually cannot claim for events that occur after the lapse date.

Q: Is family income benefit suitable for single parents? A: Yes, it can be particularly useful. Many capped households are single-parent families, and a steady monthly payout can help cover essentials like rent, utilities, and childcare.

Q: How long should my term be? A: Consider the youngest child’s age, your mortgage end date, and planned retirement age. Many choose a term that runs until children finish full-time education.

Q: Will state benefits reduce if I have this policy? A: Life insurance proceeds paid via a trust are typically ignored for means-tested benefits during probate, but rules are complex. If benefits are a concern, seek independent guidance.

What to do next

Map your monthly essentials, choose a realistic term, and decide whether indexation is worth the extra cost. Compare quotes from several insurers, read key documents, and consider placing the policy in trust. Take your time. A careful choice today can provide reliable, affordable support for your family when it matters most.

Important information

This guide provides general information, not personal financial advice. Product terms vary by insurer and individual circumstances. Always read the policy documents, including exclusions and limitations, before buying. Consider independent financial advice if you are unsure.