Family Income Benefit Leicester | Life Cover

Family Income Benefit in Leicester

How it works

You choose an annual amount and a term. If you die during the term, your family receives that amount each year — usually paid monthly — for the remainder of the term.

Take a twenty-year policy at £25,000 a year. Die in year five, and your family receives £25,000 a year for fifteen years. Die in year eighteen, and they receive it for two.

That is the key mechanic, and it is why the cover is inexpensive: the insurer's exposure falls steadily as the term runs down.

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Why it is cheaper

Compare it with level term life insurance, which pays the same lump sum whenever the claim occurs.

With family income benefit, a claim late in the term costs the insurer far less than one early on. That declining liability is priced in, and the result is noticeably lower premiums for the same annual benefit.

For a young family wanting substantial income replacement on a limited budget, this is usually where the money goes furthest.

Family Income Benefit in Leicester - Bradgate Financial Solutions, mortgage and protection advice in Leicester

Why the income format often works better

Set aside the price for a moment — there is a practical argument too.

A large lump sum arriving after a death has to be managed. Someone grieving, possibly with young children, has to decide how to invest it and how much to draw. That is a difficult task at the worst possible time, and money intended to last twenty years can be spent in five.

A monthly income replaces a salary in a way that is immediately understandable. It arrives when the bills do. It requires no decisions.

For families rather than for estate planning, that is a genuine advantage.

Where it fits

The common combination we arrange:

Each product does one job at the lowest sensible cost, rather than one large expensive policy covering everything approximately.

Decreasing term life cover to clear the mortgage — the debt reduces, so the cover can too
Family income benefit to replace lost income for the years the children are dependent
Sometimes a smaller level term policy for one-off costs such as funeral expenses

Setting the term and the amount

The amount. Think about what the household would actually need each year, not a round number. Take current income, subtract what the survivor would still earn, and consider whether childcare costs would rise.

The term. Usually until the youngest child is financially independent — often eighteen, twenty-one or beyond depending on education plans. It does not need to match the mortgage term, because the mortgage is a separate problem with its own cover.

Should the income be index linked?

Worth thinking about, because the term is long.

A fixed benefit of a given amount buys less in fifteen years than it does today. Index-linked or increasing cover raises the benefit annually, typically in line with a measure of inflation or by a fixed percentage.

The premium rises alongside it, either automatically each year or by starting higher, depending on how the policy is structured.

For a policy with twenty years to run, some inflation protection is usually worth having — the entire purpose is replacing an income, and incomes rise over time. For a shorter term of ten years or less, the erosion is smaller and level cover is often adequate.

Ask for both to be quoted so the difference is visible rather than theoretical. It is a small decision at outset with a large effect at the far end of the term.

Write it in trust

As with any life policy, family income benefit should almost always be written in trust. The payments then go directly to your chosen beneficiaries without waiting for probate, and normally sit outside your estate for inheritance tax.

It costs nothing and takes one form. See putting life insurance in trust.

Cover the non-earning parent too

A household where one parent works and the other cares for children full time often insures only the earner.

If the caring parent died, the survivor would face childcare costs, reduced hours, or leaving work. That is a real financial loss. The amount may be smaller, but it should not be nothing.

A common misunderstanding worth clearing up

People sometimes assume that because the payout is an income rather than a lump sum, the family is somehow locked into receiving it slowly.

That is not usually the case. Many insurers will offer the option of taking the remaining payments as a discounted lump sum instead, if that suits the family better at the time.

So the income format is the default rather than a restriction — and having the choice at the point of claim, when the family knows its own circumstances, is a reasonable place for that decision to sit.

Check whether the policy you are offered includes that option. Most do, but it is worth confirming rather than assuming.

Speak to us

We will work out what the household would actually need, compare family income benefit against level and decreasing term, and set it up in trust.

Call 0116 277 7536 or book a free consultation.

Cedar House, 3 Broad Street, Enderby, Leicester, LE19 4AA.

Common questions

What is family income benefit?

A form of life insurance that pays your family a regular annual or monthly income for the remainder of the policy term, rather than a single lump sum. If you took a twenty-year policy and died in year fifteen, your family would receive the agreed income for the remaining five years.

Why is it cheaper than ordinary life cover?

Because the insurer's total liability reduces as the term progresses. A claim in year two pays out over eighteen years; a claim in year eighteen pays over two. That declining exposure makes it noticeably cheaper than level term cover for the same annual amount.

Is the payout taxable?

Payments from a family income benefit policy are normally free of income tax. Whether the policy forms part of your estate for inheritance tax depends on whether it is written in trust, which is why we almost always recommend it is.

Who does it suit best?

Parents with young children, and any household where the main concern is replacing lost income rather than clearing a debt. It works particularly well alongside decreasing term cover on the mortgage — one product for the debt, one for the income.

Is a regular income better than a lump sum?

For many families, yes. A large lump sum arriving at a difficult moment has to be invested and managed, often by someone with no experience of doing so. A regular monthly amount replaces a salary in a way that is intuitive and hard to mismanage.

Can I have both this and normal life insurance?

Yes, and it is a common and sensible combination — decreasing term to clear the mortgage, family income benefit to replace income, and sometimes a smaller level term policy for one-off costs.

Written by Dave Pierce

Managing Director, Bradgate Financial Solutions

Cedar House, 3 Broad Street, Enderby, Leicester, LE19 4AA
Authorised and regulated by the Financial Conduct Authority · FCA 672856

Important information

This is a protection policy with no cash-in value at any time. Cover is subject to underwriting and to the terms and exclusions of the individual policy. If you stop paying premiums, cover will end.