---
title: "Family Income Benefit, Life Cover Paying a Monthly Income"
description: "Family income benefit: life insurance that pays your family a monthly income to the end of the term, how it pays out, what it costs, indexation and trusts."
url: "https://mortgagelane.com/insurance/family-income-benefit"
site: "Mortgage Lane"
collection: "insurance"
date: "2026-10-08"
author: "Joseph Lane"
category: "Insurance"
reviewed: "2026-10-08"
reading_time: "31 min"
byline: "Joseph Lane"
author_credentials: "CeMAP · FCA authorised firm"
language: "en-GB"
robots: "index,follow"
---

# Family Income Benefit, Life Cover Paying a Monthly Income

Family income benefit: life insurance that pays your family a monthly income to the end of the term, how it pays out, what it costs, indexation and trusts.

Family income benefit: life insurance that pays your family a monthly income to the end of the term, how it pays out, what it costs, indexation and trusts.

[Family income benefit](https://mortgagelane.com/definitions?term=family-income-benefit)

Insurance

A term life insurance policy that, if the person insured dies during the term, pays a regular income from the claim until the policy's end date instead of a lump sum.

[Read the full definition of Family income benefit](https://mortgagelane.com/definitions?term=family-income-benefit)

## Expert advice on family income benefit

Speak to a Mortgage Lane adviser about your options.

## In short

Family income benefit is life cover that replaces a lost income month by month. If you die during the term, your family receives a set monthly amount until the policy ends. As the term runs down, fewer payments remain, so the most the insurer could pay falls each year, and that usually makes family income benefit cost less than level term cover of the same starting value.

## What is family income benefit?

**[Family income benefit](https://mortgagelane.com/definitions#def-family-income-benefit) is a term [life insurance](https://mortgagelane.com/definitions#def-life-insurance) policy that pays a fixed monthly or annual income from the date of a valid death claim until the policy's end date, rather than a lump sum.** You choose the income at the outset, often to match take-home pay or the household's outgoings, and it can stay level or increase each year with inflation. Some policies add [critical illness cover](https://mortgagelane.com/definitions#def-critical-illness-cover), which pays the income on diagnosis of a listed condition as well as on death. The policy is also known as family income benefit insurance or FIB life insurance.

If the person insured dies during the term, the family receives the chosen income each month from the claim until the end date, so it replaces earnings month by month while the children are growing up. The number of payments left falls as the term runs down, and the total the insurer might pay falls with it, so family income benefit usually costs less than level term cover paying a lump sum of the same starting value. It is often one of the lower-cost ways to protect a family's income. The term can run until the youngest child finishes education, and the policy can sit alongside mortgage life cover, which clears the home loan while the income pays the bills.

Family income benefit is a [protection policy](https://mortgagelane.com/definitions#def-protection-insurance). It pays only on a valid claim, and it has no cash-in value: if you stop paying the premiums, or the term ends without a claim, nothing is paid. In the [Financial Conduct Authority](https://mortgagelane.com/definitions#def-financial-conduct-authority)'s terms it is a pure protection contract, a long-term insurance contract whose benefits are payable only on death or incapacity and which has no surrender value where the premiums are paid regularly ([FCA Handbook: pure protection contract](https://handbook.fca.org.uk/glossary/G935)). Pure protection is a non-investment insurance contract ([FCA Handbook: non-investment insurance contract](https://handbook.fca.org.uk/glossary/G1357)), so advising on and arranging family income benefit is insurance distribution, regulated by the Financial Conduct Authority under its Insurance: Conduct of Business sourcebook, ICOBS ([FCA Handbook: ICOBS 1.1](https://www.handbook.fca.org.uk/handbook/ICOBS/1/1.html)). Mortgage advice comes under a different set of rules.

Mortgage Lane helps people put family income benefit in place: parents and couples protecting their household income, single parents, stay-at-home parents whose childcare and household role would need replacing, and self-employed people without workplace death-in-service cover. Most of the work is in setting the income and the term around the family's own figures and choosing the options that matter to them, then making sure the application is answered accurately. Our [insurance](https://mortgagelane.com/insurance) pages cover the other protection policies, and our [buildings and contents insurance](https://mortgagelane.com/insurance/buildings-and-contents-insurance) page covers the home cover a mortgage lender asks for.

## Family income benefit costs

**Family income benefit premiums are set by each insurer, and they depend on the person insured as well as on the cover chosen.** The insurer starts with age, health, smoking status and lifestyle, and then prices the income chosen, the length of the term, whether the income is indexed and whether critical illness cover is added. A higher income or a longer term means more potential payments and a higher premium, and indexation and critical illness cover each add to the price. This page quotes no premiums, because each insurer prices its own cover and the figure depends on the answers in the application.

Because the maximum total payout falls over the term, family income benefit typically costs less than level term cover paying a lump sum of the same starting value. A level term policy pays the same lump sum on a claim in the last year of the term as in the first, so the insurer's maximum payout never falls. The monthly income the family would receive from family income benefit stays the same, and only the number of months it would be paid for falls. On an indexed policy the premium usually rises each year as the cover increases, in return for an income that keeps more of its value.

The answers in the application also decide the price, and whether the policy pays. The insurer's [underwriting](https://mortgagelane.com/definitions#def-insurance-underwriting) is based on what you tell it about your health and lifestyle, and the law requires you to take reasonable care when you answer (the checklist below explains the duty). Our [life insurance when declined](https://mortgagelane.com/insurance/life-insurance-when-declined) page covers applying after being declined or postponed elsewhere.

**Protecting your family's income?** Get in touch with your take-home pay, your household outgoings and your children's ages. The income and term are set around them.

## Family income benefit checklist

**Every family income benefit policy is built from the same set of choices, and each insurer sets its own terms for them.** The table lists them in the order they are usually decided. The income and the term set the size of the cover. Indexation, the number of lives covered and critical illness cover change what it pays and what it costs, while terminal illness cover, any lump-sum option and the trust affect how and when it pays and who receives the money. Each row describes the common choices, not any one insurer's rule, and the policy wording decides a case.

Two rules apply to every application, whichever insurer is chosen. The first is the customer's duty under the Consumer Insurance (Disclosure and Representations) Act 2012 to [take reasonable care not to make a misrepresentation](https://mortgagelane.com/definitions#def-consumer-insurance-disclosure) when answering the insurer's questions ([legislation.gov.uk: section 2 of the 2012 Act](https://www.legislation.gov.uk/ukpga/2012/6/section/2)). If a wrong answer was deliberate or reckless, the insurer may avoid the policy and refuse all claims. If it was careless, the remedy depends on what the insurer would have done with the right answer: where it would not have offered cover at all, it may avoid the policy and refuse claims but must return the premiums; where it would have applied different terms, the policy can be treated as if those terms applied; and where it would have charged more, it may reduce a claim in proportion ([legislation.gov.uk: Schedule 1 to the 2012 Act](https://www.legislation.gov.uk/ukpga/2012/6/schedule/1)). The second is the adviser's duty under ICOBS to identify your demands and needs before the policy is taken out, and to propose only cover that is consistent with them ([FCA Handbook: ICOBS 5.2](https://www.handbook.fca.org.uk/handbook/ICOBS/5/2.html)).

## Family income benefit checklist

*Family income benefit checklist*

| Feature | Choices |
| --- | --- |
| Income | A monthly or annual amount, often matched to take-home pay or household outgoings |
| Term | Chosen by you, for example to the youngest child's 18th or 21st birthday or the end of full-time education |
| Indexation | A level income, or an income that rises each year with inflation; on some policies it keeps rising during a claim |
| Lives covered | Single life, or joint life, which usually pays on the first death and then ends |
| Critical illness | Optional on some policies: pays the income on diagnosis of a listed condition, as the policy defines it |
| Terminal illness | Included as standard in some policies: pays on a diagnosis of terminal illness that meets the policy's definition |
| Lump-sum option | Some insurers allow a claim to be taken as a single discounted lump sum; others pay only as income |
| Trust | Can be written in trust, so the income is paid to trustees for the beneficiaries |
| Cash-in value | None: the policy pays only on a valid claim during the term |

The choices most policies offer, as at October 2026; each insurer sets its own terms, definitions and options, and the policy wording decides a case. The cash-in value row follows the FCA Handbook definition of a pure protection contract, checked 8 October 2026.

## Who family income benefit suits

**Family income benefit suits households where losing one person's earnings, or their work at home, would leave a monthly gap, and that gap differs from family to family.**

### Parents with young children

Family income benefit is designed for this case: an income that replaces a parent's earnings until the children are independent. A 20-year term taken out when a child is born covers most of the years the children are likely to depend on the household. Where the youngest child is ten, a shorter term does the same job and costs less, because there are fewer potential payments. Matching the income to take-home pay rather than gross salary reflects what the household spends each month, and HMRC does not treat the payments on a death as income (the tax section below sets out the rule). Where both parents earn, each income is a separate gap, and each can be covered.

**Get in touch** with your children's ages.

### Stay-at-home parents

If a parent who does not earn dies, the cost of childcare and running the home can be substantial, and family income benefit can fund it. A parent at home may provide the childcare, the school runs and the running of the home, and the surviving parent may have to pay for some of that, or reduce their own working hours, to keep the household going. Cover on a stay-at-home parent is therefore set from those costs rather than from earnings, and the term from the age at which the children will need less care.

**Get in touch** with your childcare costs.

### Single parents

A single parent's income is the household's only income, and family income benefit paid to guardians through a trust can maintain the children. With the policy written in trust, the trustees receive the income each month and use it for the children; the trustees may be the same people who would look after the children, or different people, and the choice is part of setting up the trust. Mortgage Lane does not give legal advice, and a solicitor can advise on the trust and the wider arrangements for the children. A single parent buying or keeping a home alone can read our [single person mortgages](https://mortgagelane.com/mortgages/single-person-mortgages) page for how lenders assess one income.

**Get in touch** with your guardianship arrangements.

### Self-employed parents

Without workplace death-in-service benefit, personal cover carries the whole risk. An employee may have a death-in-service lump sum through an employer's scheme, while a sole trader, a partner or a company director without a scheme has only the cover they arrange for themselves. The income is set from the household's needs, and an insurer may ask for evidence of earnings, such as [net profit](https://mortgagelane.com/definitions#def-net-profit) for a sole trader or salary and [dividends](https://mortgagelane.com/definitions#def-dividend-income) for a company director. Lenders read the same figures on a [self-employed mortgage](https://mortgagelane.com/definitions#def-self-employed-mortgage) application: see [self-employed mortgages](https://mortgagelane.com/mortgages/self-employed-mortgages), with [sole trader mortgages](https://mortgagelane.com/mortgages/sole-trader-mortgages) and [limited company director mortgages](https://mortgagelane.com/mortgages/limited-company-director-mortgages) for the detail. A self-employed person also has no employer sick pay, which is the gap [income protection](https://mortgagelane.com/insurance/income-protection) is designed for.

**Get in touch** with your profit figures.

### Alongside mortgage life cover

Decreasing or level term cover clears the mortgage, and family income benefit pays the remaining bills. On a [repayment mortgage](https://mortgagelane.com/definitions#def-repayment-mortgage) the balance falls over the term, which is why decreasing term cover, whose lump sum falls over the term, is often used for it. An [interest-only mortgage](https://mortgagelane.com/definitions#def-interest-only-mortgage) keeps the whole balance until the end, so level term cover matches it (our [interest only residential mortgages](https://mortgagelane.com/mortgages/interest-only-residential-mortgages) page covers the repayment plan). With the mortgage cleared by its own policy, the family's monthly need falls by the mortgage payment, and family income benefit can be set at the lower figure. On a [joint mortgage](https://mortgagelane.com/definitions#def-joint-mortgage), each borrower's share of the household income is a separate gap to consider. Our [residential mortgages](https://mortgagelane.com/mortgages/residential-property-mortgages) page covers the mortgage side.

**Get in touch** with your mortgage balance and term.

Illustratively, for a youngest child aged five, £2,500 a month to the 18th birthday is a 13-year term paying up to £390,000; running it to the 21st birthday makes it 16 years and up to £480,000.

## How family income benefit pays out

**On a valid claim, the insurer pays the chosen income from the date of claim until the end of the term.** A claim early in the term pays for many years; a claim late in the term pays for few. The monthly amount is the same whichever year the claim falls in, unless the policy is indexed, in which case the income rises each year. The family income benefit payout therefore depends on the income and the time left, and the arithmetic below works through the figures. Nothing is paid after the policy's end date, however long the family still needs support, so the term chosen at the outset sets the last payment.

Who receives the income depends on how the policy is set up: the policyholder's estate, the surviving joint policyholder or, where the policy is written in trust, the trustees for the beneficiaries. A single-life policy that you own on your own life and do not write in trust pays your estate, so the personal representatives collect it once they have authority to deal with the estate, which in England, Wales and Northern Ireland means a [grant of probate](https://mortgagelane.com/definitions#def-grant-of-probate) or letters of administration, and in Scotland confirmation. Our [probate loans](https://mortgagelane.com/mortgages/probate-loans) page explains the grant and how long estates can take. A policy that one person owns on another's life, such as a partner's, pays the owner. A joint-life policy usually pays the surviving joint policyholder on the first death and then ends. A policy written in trust pays the trustees, who hold the income for the beneficiaries named in the trust.

The insurer checks each claim against the policy, including the answers given in the application. Where the policy includes terminal illness cover, it can pay on a diagnosis that meets the policy's definition, before death. Where critical illness cover was added, it pays on diagnosis of a listed condition as the policy defines it; our [critical illness cover when declined](https://mortgagelane.com/insurance/critical-illness-declined) page covers the definitions and what happens when cover is refused. If you disagree with a claim decision, you complain to the insurer first. For most complaints a business has up to 8 weeks to respond, and you can then take the complaint to the [Financial Ombudsman Service](https://mortgagelane.com/definitions#def-financial-ombudsman-service) within 6 months of the final response, free of charge ([Financial Ombudsman Service: how to complain](https://www.financial-ombudsman.org.uk/consumers/how-to-complain)).

## Family income benefit vs term life insurance: an income or a lump sum?

**Family income benefit and level term cover answer different needs: one replaces a monthly income, the other pays a capital sum.** Family income benefit suits replacing monthly earnings and budgeting, while a lump sum suits large one-off needs such as repaying a mortgage. Decreasing term cover is the third option, a lump sum that falls over the term and is often used to match a repayment mortgage. A family can hold more than one: decreasing or level term cover for the mortgage, and family income benefit for the household bills.

The gap between what each could pay is widest late in the term. On the illustration further down, a £2,500 a month family income benefit policy over 20 years pays £300,000 in total on a claim halfway through, while a level term policy with the same £600,000 starting value pays £600,000 at any point in the term. A family with a lump sum has to manage and invest it to produce an income. With family income benefit the income arrives without that step, but the family cannot draw more in a month than the policy pays, unless the policy offers a lump-sum option. Which suits depends on what the money is for, and the answer can be a mix of the two.

Decreasing term cover and family income benefit both have a maximum payout that falls as the term runs down, which is why both usually cost less than level term with the same starting value. On decreasing term the lump sum itself gets smaller, in step with a repayment mortgage balance. On family income benefit the monthly income stays the same and only the number of payments left gets smaller, so the household's budget is protected at the same level whenever the claim is made.

## Family income benefit, level term and decreasing term

*Family income benefit, level term and decreasing term*

| Feature | Family income benefit | Level term (lump sum) | Decreasing term |
| --- | --- | --- | --- |
| Pays | A monthly income from the claim to the end of the term | One lump sum | One lump sum that falls over the term |
| Total payout | Falls over the term | Stays the same | Falls over the term |
| Often used for | Replacing income and budgeting | Large one-off needs | Repaying a repayment mortgage |
| Typical cost | Usually lower than level term with the same starting value | Usually higher, because the payout never falls | Usually lower than level term with the same starting value |
| Managing the payout | Paid as income, so there is no lump sum to invest | The family must manage and invest a lump sum | Usually repays the mortgage |

General features, not any insurer's terms: each insurer sets its own options, definitions and prices, and the policy wording decides a case. The cost rows compare policies with the same starting cover, as at October 2026.

## Family income benefit in trust, and tax

**Payments made on a death under a family income benefit policy are free of income tax.** HMRC's manual describes family income benefit as a series of capital sums paid on a death during the policy period, and says that, being capital sums on death, the payments are not treated as income ([HMRC Insurance Policyholder Taxation Manual: IPTM8080](https://www.gov.uk/hmrc-internal-manuals/insurance-policyholder-taxation-manual/iptm8080)). The family therefore receives the income without income tax deducted, and it does not count as the recipients' taxable income. The manual deals with payments on a death; where critical illness cover was added, a tax adviser can confirm how income paid on a diagnosis is treated.

How [Inheritance Tax](https://mortgagelane.com/definitions#def-inheritance-tax) applies depends on who the policy pays. Writing the policy in trust means the payments go to the trustees for the beneficiaries without waiting for probate, and normally fall outside the deceased's estate for Inheritance Tax. HMRC's form for life policies on a death deals separately with policies payable to the beneficiaries under a trust, which do not form part of the estate, and with sums payable to the estate itself ([HMRC: life assurance and annuities, IHT410](https://www.gov.uk/government/publications/inheritance-tax-life-assurance-and-annuities-iht410)). HMRC also notes that policies are often written into trust for estate planning and to ease the distribution of funds after a death ([HMRC Trust Registration Service Manual: TRSM23030](https://www.gov.uk/hmrc-internal-manuals/trust-registration-service-manual/trsm23030)).

Without a trust, the value of the remaining payments may form part of the estate. Where the person who died owned the policy on their own life, HMRC's manual says the proceeds form part of their free estate ([HMRC Inheritance Tax Manual: IHTM20012](https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm20012)), and the income then waits for the personal representatives to obtain the grant before it can be collected. On a large estate that can mean tax on a policy bought for the children, and a delay when the family most needs the money.

Some insurers provide their own trust forms, and the trust can be set up when the policy starts, with the trustees and beneficiaries named on the form. The choice of trustees, the type of trust and any tax on the trust itself are legal and tax questions. Scotland has its own trust law, and HMRC's manual sets out separate Scottish examples for policies held on trust ([HMRC Inheritance Tax Manual: IHTM20155](https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm20155)). Mortgage Lane does not give tax or legal advice: GOV.UK explains the tax ([GOV.UK: how Inheritance Tax works](https://www.gov.uk/inheritance-tax)), and a solicitor or tax adviser can advise on the trust.

Family income benefit paid on a death is free of income tax, but without a trust a policy you own on your own life forms part of your estate, so the income waits for the grant and may count for Inheritance Tax.

## How family income benefit is arranged

**Arranging family income benefit runs in five steps, from the household's figures to the trust.**

1. **Income need.** Take-home pay, the household's outgoings and the income the family would need, with any mortgage cover, death-in-service benefit or savings taken into account, recorded as your demands and needs.
2. **Term.** To the youngest child's independence, such as their 18th or 21st birthday or the end of full-time education.
3. **Options.** Indexation, critical illness cover, single or joint cover, and whether a lump-sum option is offered.
4. **Underwriting.** Health and lifestyle questions answered accurately, with any further medical evidence the insurer asks for; the duty to take reasonable care applies to every answer.
5. **Trust.** The policy written in trust where appropriate, on the insurer's trust form where it offers one or a form drawn up by a solicitor, with the trustees and beneficiaries named and a solicitor's advice where the family's circumstances need it.

## What the family receives: the arithmetic

**An illustrative level family income benefit policy pays £2,500 a month, £30,000 a year, over a 20-year term taken out when the youngest child is born.** The figures are arithmetic on hypothetical numbers, not a quote and not any insurer's terms. They assume the claim falls on a policy anniversary and the income is paid for whole years to the end of the term.

### Step 1. Total paid by the year of the claim

Each year the claim comes later, one fewer year of income remains, so the total paid falls by £30,000 a year. The monthly income does not change.

## Step 1 figures

*Step 1 figures*

| Years into the term at claim | Years of income remaining | Monthly income | Total paid |
| --- | --- | --- | --- |
| At the start | 20 | £2,500 | £600,000 |
| 5 | 15 | £2,500 | £450,000 |
| 10 | 10 | £2,500 | £300,000 |
| 15 | 5 | £2,500 | £150,000 |
| 19 or more | 1 or less | £2,500 | Up to £30,000 |

Illustrative arithmetic on hypothetical figures: a level income with no indexation and claims on a policy anniversary, worked with the calculator on this page. Not a quote or an offer of insurance.

### Step 2. Against a level term lump sum

The family receives £2,500 a month, the amount needed to run the household, whichever year the claim falls in. A level term policy paying £600,000 at every point costs more because the insurer's maximum payout never falls, even when the children are nearly grown. The table sets the two side by side.

## Step 2 figures: against a £600,000 level term policy

*Step 2 figures: against a £600,000 level term policy*

| Years into the term at claim | Family income benefit total | Level term lump sum | Difference |
| --- | --- | --- | --- |
| At the start | £600,000 | £600,000 | £0 |
| 5 | £450,000 | £600,000 | £150,000 |
| 10 | £300,000 | £600,000 | £300,000 |
| 15 | £150,000 | £600,000 | £450,000 |
| 19 | £30,000 | £600,000 | £570,000 |

Illustrative arithmetic on hypothetical figures, worked with the calculator on this page. The level term policy has the same £600,000 starting value and pays it in full on a claim at any point in the term. Not a quote or an offer of insurance.

On a claim 10 years into the term, family income benefit pays £300,000 over the 10 years left and the level term policy pays £600,000 at once. The level term family has £300,000 more, which is what the extra premium on level term buys, but it has to make the money last and invest it. The family income benefit family has the same £2,500 a month it planned around.

### Step 3. What indexation changes

With indexation the income rises each year, and on some policies it keeps rising during a claim. The table assumes an illustrative 3% a year, an assumption for the arithmetic and not a forecast or any insurer's rate. Policies link the increase to an inflation measure named in the policy, such as the [Retail Prices Index](https://mortgagelane.com/definitions#def-retail-prices-index) or the [Consumer Prices Index](https://mortgagelane.com/definitions#def-consumer-prices-index).

## Step 3 figures: income rising by an illustrative 3% a year

*Step 3 figures: income rising by an illustrative 3% a year*

| Years into the term at claim | Monthly income at the claim | Total paid, indexed at 3% | Total paid, level income |
| --- | --- | --- | --- |
| At the start | £2,500.00 | £806,111 | £600,000 |
| 5 | £2,898.19 | £646,837 | £450,000 |
| 10 | £3,359.79 | £462,195 | £300,000 |
| 15 | £3,894.92 | £248,144 | £150,000 |

Illustrative arithmetic: the income rises by 3% on each policy anniversary, before and during the claim, worked with the calculator on this page. 3% is an assumption, not a forecast or an insurer's indexation rate. Not a quote or an offer of insurance.

On these figures an indexed income is about £3,360 a month on a claim 10 years into the term, just over a third more than at the start, and the total paid is £462,195 against £300,000 on a level policy. On a claim after 5 years the indexed total, £646,837, is more than a £600,000 level term lump sum. An indexed policy costs more, and its premium usually rises each year as the cover increases, so indexation is a choice between a lower premium now and an income that keeps more of its value later.

### Step 4. Setting the term

For a family whose youngest child is five, the same £2,500 a month to the child's 18th birthday is a 13-year term: it could pay up to £390,000 on a claim at the start, and £240,000 on a claim after 5 years. To the 21st birthday it is a 16-year term: up to £480,000 at the start and £330,000 after 5 years. The longer term costs more, because the insurer could pay for three more years, and it covers the years of further education or training that some children need.

### What decides the case

Set the income to the household's monthly need and the term to the youngest child's independence, consider indexation, and write the policy in trust. The income and the term fix how much the policy can pay. Indexation affects what that income will buy in later years, and the trust settles who receives it and how quickly. Whether the policy pays at all depends on accurate answers in the application.

## Related topics

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- [2026](https://mortgagelane.com/insurance/life-insurance-when-declined)Insurance[Life Insurance When Declined, Refused or Postponed Cover](https://mortgagelane.com/insurance/life-insurance-when-declined)Life insurance when declined: why insurers refuse or postpone, loadings and exclusions, specialist underwriting, over-50s plans and your disclosure rights.[Read more about Life Insurance When Declined, Refused or Postponed Cover](https://mortgagelane.com/insurance/life-insurance-when-declined)
- [2026](https://mortgagelane.com/insurance/critical-illness-declined)Insurance[Critical Illness Declined, Exclusions and Alternatives](https://mortgagelane.com/insurance/critical-illness-declined)Critical illness cover when declined: why it is refused when life cover is accepted, exclusions, severity-based cover and income protection as an alternative.[Read more about Critical Illness Declined, Exclusions and Alternatives](https://mortgagelane.com/insurance/critical-illness-declined)

## Family income benefit calculator

The calculator shows what a family income benefit policy would pay in total on a claim in any year of the term, the income at the date of the claim, and how the total compares with a level term lump sum equal to the level income for the full term. The starting figures are the illustration on this page: £2,500 a month over 20 years, a claim after 5 years and no indexation. Enter your own income and term, and move the years to see how the total falls as the term runs down.

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Indicative estimate only, based on the figures you enter. It assumes the claim falls on a policy anniversary, the income is paid monthly for whole years to the end of the term and any indexation is added once a year at the rate you enter, before and during the claim; each insurer sets its own terms and options, and no premium is shown. This is not a quote or an offer of insurance.

## Frequently asked questions about family income benefit

**Q: How does family income benefit work?**

faq-id: how-does-family-income-benefit-work

You choose an income and a term, often until your youngest child finishes education, and pay a premium for the cover. If you die during the term, the insurer pays that income from the date of the claim to the end of the term, so a claim early in the term pays for longer than a claim near the end. The monthly amount stays the same, or rises each year if the policy is indexed. If the term ends without a claim, the policy stops and pays nothing, because it has no cash-in value. A policy written in trust pays the trustees; without a trust, a policy you own on your own life pays your estate, and a joint policy pays the surviving policyholder.

**Q: What is family income benefit?**

faq-id: what-is-family-income-benefit

Family income benefit is life insurance that, if you die during the policy term, pays your family a regular tax-free income, usually monthly, from the date of a valid claim until the end of the term, instead of a single lump sum. It is designed to replace lost earnings while children are growing up. HMRC treats the payments as a series of capital sums paid on death rather than as income ([HMRC: IPTM8080](https://www.gov.uk/hmrc-internal-manuals/insurance-policyholder-taxation-manual/iptm8080)). Because fewer payments remain as the term runs down, the most the insurer could pay falls each year, which is why it usually costs less than level term cover with the same starting value.

**Q: Should I choose family income benefit or a lump sum?**

faq-id: should-i-choose-family-income-benefit-or-a-lump-sum

Family income benefit suits replacing monthly earnings and budgeting, while a lump sum suits large one-off needs such as repaying a mortgage. A family can hold both: decreasing or level term cover for the mortgage, and family income benefit for household bills. A lump sum has to be managed and invested to produce an income, while family income benefit pays the income directly but cannot be drawn faster than the policy allows, unless it has a lump-sum option. The right mix depends on the mortgage, the household's monthly costs and the children's ages.

**Q: How much does family income benefit pay out in total?**

faq-id: how-much-does-family-income-benefit-pay-out-in-total

The total depends on when a claim is made. A level policy paying £2,500 a month over a 20-year term pays £600,000 on a claim at the very start, £450,000 with 15 years left, £300,000 with 10 years left and £150,000 with five years left. The monthly income stays the same in each case, unless the policy is indexed, when it rises each year and the total is higher. These are illustrative figures, not a quote or any insurer's terms.

**Q: Why is family income benefit cheaper than level term cover?**

faq-id: why-is-family-income-benefit-cheaper-than-level-term-cover

Family income benefit usually costs less than level term cover because the insurer's maximum total payout falls every year as the remaining term shortens, whereas level term pays the same lump sum throughout. On a £2,500 a month policy over 20 years, the most it could pay falls from £600,000 at the start to £300,000 halfway through, while a £600,000 level term policy could still pay £600,000. The monthly income the family receives does not fall. Each insurer sets its own premiums, so the size of the difference varies.

**Q: Should family income benefit be written in trust?**

faq-id: should-family-income-benefit-be-written-in-trust

Writing family income benefit in trust means the payments go to trustees for your beneficiaries without waiting for probate, and normally fall outside your estate for inheritance tax. HMRC's IHT410 form deals with policies payable to trust beneficiaries as outside the estate ([HMRC: IHT410](https://www.gov.uk/government/publications/inheritance-tax-life-assurance-and-annuities-iht410)). Without a trust, the remaining payments may form part of your estate and wait for the grant. The trust can be set up when the policy starts. Mortgage Lane does not give legal or tax advice; a solicitor can advise on the trust and the choice of trustees.

**Q: Is family income benefit taxable?**

faq-id: is-family-income-benefit-taxable

Payments made on a death under a family income benefit policy are free of income tax for the recipients: HMRC treats them as a series of capital sums paid on death, not as income ([HMRC: IPTM8080](https://www.gov.uk/hmrc-internal-manuals/insurance-policyholder-taxation-manual/iptm8080)). Inheritance tax is a separate question. Where the policy is not written in trust, the value of the remaining payments may form part of the policyholder's estate for inheritance tax; written in trust, it normally falls outside it. Mortgage Lane does not give tax advice, and GOV.UK or a tax adviser can help with your own position, including how income paid on a critical illness claim is treated.

**Q: How long should a family income benefit policy last?**

faq-id: how-long-should-a-family-income-benefit-policy-last

A family income benefit policy is set to last until the youngest child reaches financial independence, such as their 18th or 21st birthday or the end of full-time education. The longer the term, the higher the premium and the larger the potential payout. For a family whose youngest child is five, a £2,500 a month policy to the 18th birthday is a 13-year term that could pay up to £390,000, and one to the 21st birthday is a 16-year term that could pay up to £480,000. These are illustrative figures.

**Q: Can family income benefit pay off my mortgage?**

faq-id: can-family-income-benefit-pay-off-my-mortgage

Family income benefit pays an income rather than a lump sum, so it does not clear a mortgage in one payment, though the income can cover the monthly mortgage payments. A decreasing or level term policy is usually used to repay the mortgage itself: decreasing term for a repayment mortgage, whose balance falls over the term, and level term for an interest-only mortgage, whose balance stays the same. With the mortgage cleared by its own policy, family income benefit can be set at the household's monthly need without the mortgage payment.

**Q: What is indexation on family income benefit?**

faq-id: what-is-indexation-on-family-income-benefit

Indexation increases the income each year in line with inflation, before a claim and, on some policies, during it, so the payments keep their value over a long term. The policy names the inflation measure it uses. Indexed policies cost more, and the premium usually rises each year as the cover increases. At an illustrative 3% a year, a £2,500 monthly income becomes about £3,360 a month after 10 years. Whether increases continue once a claim has started depends on the policy wording.

**Q: Can I add critical illness cover to family income benefit?**

faq-id: can-i-add-critical-illness-cover-to-family-income-benefit

Some insurers offer family income benefit with critical illness cover, paying the income from diagnosis of a listed serious illness until the end of the term. It costs more than life-only cover and is subject to the policy's critical illness definitions, which set out the conditions covered and when each counts. You must answer the application questions with reasonable care, because a careless or deliberate misrepresentation can reduce or defeat a claim ([Consumer Insurance (Disclosure and Representations) Act 2012, Schedule 1](https://www.legislation.gov.uk/ukpga/2012/6/schedule/1)).

**Q: Can family income benefit be taken as a lump sum?**

faq-id: can-family-income-benefit-be-taken-as-a-lump-sum

Some insurers allow a family income benefit claim to be converted into a single lump sum, discounted to reflect early payment, while others pay only as income. The option and its terms, including how the discount is worked out, are set out in the policy, so check the wording before relying on it. Where a family expects to need capital, for example to repay a mortgage, a separate level or decreasing term policy pays a lump sum by design.

**Q: Is family income benefit regulated?**

faq-id: is-family-income-benefit-regulated

Yes. Family income benefit is a pure protection contract, long-term insurance that pays only on death or incapacity and has no cash-in value ([FCA Handbook: pure protection contract](https://handbook.fca.org.uk/glossary/G935)). Advising on and arranging it is insurance distribution, regulated by the Financial Conduct Authority under its Insurance: Conduct of Business sourcebook (ICOBS), not under the mortgage rules. The adviser must identify your demands and needs before a policy is taken out. If a complaint about the policy or a claim is not resolved, you can take it to the Financial Ombudsman Service free of charge.

**Q: Does family income benefit have a cash-in value?**

faq-id: does-family-income-benefit-have-a-cash-in-value

No. Family income benefit pays only on a valid claim during the term and builds up no savings, so it has no cash-in value. If you stop paying the premiums, the cover ends and nothing is paid back, and if the term ends without a claim, the policy stops. Having no cash-in value is part of the FCA's definition of a pure protection contract, which has no surrender value where the premiums are paid regularly ([FCA Handbook: pure protection contract](https://handbook.fca.org.uk/glossary/G935)).

**Q: How much family income benefit do I need?**

faq-id: how-much-family-income-benefit-do-i-need

You can start from take-home pay or the household's monthly outgoings, and then take off anything another policy or source would cover. If decreasing or level term cover would clear the mortgage, the income can be set without the mortgage payment. A stay-at-home parent's cover is set from the childcare and running costs the family would face. Death-in-service benefit and savings reduce the gap. The term then runs to the youngest child's independence. Mortgage Lane works through these figures with you before any policy is chosen.

**Q: Can I get joint family income benefit?**

faq-id: can-i-get-joint-family-income-benefit

Yes, family income benefit can cover one life or two, depending on the insurer. A joint policy usually pays on the first death and then ends, so the surviving partner receives the income for the rest of the term but has no cover of their own afterwards. Two single policies are separate contracts, so each can pay out. Each insurer sets its own terms for joint cover. The choice turns on the cost and on whether both incomes, or both roles at home, need replacing.

**Q: Does family income benefit pay out on terminal illness?**

faq-id: does-family-income-benefit-pay-out-on-terminal-illness

Some family income benefit policies include terminal illness cover as standard, which pays the income on a diagnosis of terminal illness that meets the policy's definition, instead of waiting for death. The definition and any conditions are set by each insurer and written in the policy, so check them before relying on the cover. As with any claim, the insurer checks the answers given in the application, and a careless or deliberate misrepresentation can reduce or defeat the claim.

**Q: Do stay-at-home parents need family income benefit?**

faq-id: do-stay-at-home-parents-need-family-income-benefit

A stay-at-home parent earns no salary, but the cost of childcare and running the home if they die can be substantial, and family income benefit can fund it. The surviving parent may need to pay for childcare, school runs and help at home, or reduce their own working hours. Cover is set from those costs rather than from earnings, and the term can run until the youngest child is independent. Whether it is worth the premium depends on the family's other resources, such as savings or the working parent's own cover.

**Q: What do I have to tell the insurer when I apply for family income benefit?**

faq-id: what-do-i-have-to-tell-the-insurer-when-i-apply-for-family-income-benefit

You must answer the insurer's questions with reasonable care, which is the legal duty under the Consumer Insurance (Disclosure and Representations) Act 2012 ([legislation.gov.uk: section 2](https://www.legislation.gov.uk/ukpga/2012/6/section/2)). The questions cover your health and lifestyle, and the insurer may ask for medical evidence. If an answer was deliberately or recklessly wrong, the insurer can avoid the policy and refuse all claims. If it was careless, the insurer can apply the terms it would have offered, reduce a claim in proportion to the premium it would have charged, or, if it would not have offered cover at all, avoid the policy and refuse claims but return the premiums.

**Q: Who receives family income benefit payments?**

faq-id: who-receives-family-income-benefit-payments

It depends on how the policy is set up. A policy written in trust pays the trustees, who hold the income for the beneficiaries named in the trust, such as the children. A joint policy usually pays the surviving policyholder, and a policy one person owns on another's life pays the owner. A single-life policy you own on your own life and do not write in trust pays your estate, so the payments wait for the personal representatives to obtain a grant of probate, or confirmation in Scotland, and their value may count towards the estate for inheritance tax. HMRC's IHT410 form deals with trust policies separately from sums paid to the estate ([HMRC: IHT410](https://www.gov.uk/government/publications/inheritance-tax-life-assurance-and-annuities-iht410)).

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Published: 2026-10-08

Last reviewed: 2026-10-08

Source: https://mortgagelane.com/insurance/family-income-benefit