Family income benefit explained
Family income benefit (FIB) is a type of term life insurance that pays your loved ones a regular, tax-free income — monthly or yearly — instead of a single lump sum if you die within the policy term. This 2026 guide explains how it works, what drives the cost, the tax and trust position, and how it compares with level and decreasing term cover.
What is family income benefit?
- What it is: a fixed-term life insurance policy that pays a regular income to your family if you die before the term ends, rather than one lump sum.
- How long it pays: the income runs from the date of the claim to the end of the original term — so the total amount paid out falls the later in the term a claim is made.
- Tax: the income is paid free of income tax and capital gains tax; writing the policy in trust can also keep it outside your estate for inheritance tax.
- Cost: it is usually one of the cheaper forms of life cover, because the insurer’s total liability reduces as the term goes on.
Family income benefit vs lump-sum term cover
| Feature | Family income benefit | Level term | Decreasing term |
|---|---|---|---|
| How it pays out | Regular income to end of term | One fixed lump sum | One reducing lump sum |
| Payout shape over time | Total falls as the term runs down | Stays the same | Falls over time |
| Best suited to | Replacing lost income / family living costs | Clearing a debt or leaving a set sum | A repayment mortgage |
| Typical relative cost | Often the cheapest | Highest of the three | Lower than level |
| Managing a large windfall | Avoided — paid as income | Family receives and manages a lump sum | Family receives and manages a lump sum |
Indicative comparison only — structure and pricing vary by insurer and individual underwriting. Not a quote.
How family income benefit pays out
When you take out a policy you choose the income your family would need — say £2,000 a month — and the term, often set to run until your youngest child is financially independent or your mortgage ends. If you die at any point during the term, the insurer pays that income from the date of the claim until the original end date. The defining feature is that the payout is shaped like a salary rather than a cheque: a family receiving £2,000 a month would get it for the full term if a claim came in year one, but only for the final few years if a claim came near the end. If you survive the term, the policy simply ends with no payout — like any term life cover.
Because the income is fixed in today’s money, many insurers offer an index-linked option that increases the benefit each year in line with inflation, protecting its real value over a long term — though premiums then rise too. For a wider view of how terms and sums assured work, see the life insurance hub and our guide to how much cover you need.
Who is family income benefit for?
Family income benefit tends to suit households whose main worry is replacing a regular income rather than clearing a single large debt — for example a parent who wants to make sure the bills, childcare and everyday costs are covered until the children grow up. Paying as an income can also be reassuring where the surviving partner would rather not have to invest or budget a large lump sum at a difficult time.
It is often used alongside, not instead of, other cover: a decreasing term policy to clear a repayment mortgage, or level term for a fixed legacy. Many parents combine the two — see life insurance for parents and our comparison of term vs whole of life. The right mix depends on your debts, income and family, so it is worth comparing options for your own circumstances.
Tax and trust treatment
The income from a family income benefit policy is paid free of income tax and capital gains tax, so in most cases your family receives the full amount. As with any life policy, however, a payout can form part of your estate for inheritance tax if it is not arranged correctly. Writing the policy in trust keeps the proceeds outside your estate, so they are not subject to inheritance tax and can usually be paid to your family without waiting for probate. There is normally no charge to set up a trust, and most insurers provide the paperwork.
The premiums you pay are technically treated as gifts for inheritance tax, but regular premiums are generally covered by standard exemptions. Tax treatment depends on your individual circumstances and can change, so confirm the position for your own situation with a qualified adviser before relying on it.
Family income benefit: FAQs
Information only — not financial advice and not a personal recommendation. Figures are indicative and not a quote. Tax treatment depends on individual circumstances and HMRC practice and may change. My Insurance Expert is not an FCA-authorised intermediary and does not arrange or sell policies. Last updated: 2026-06-19
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