What is Family Income Benefit?

Full Definition

Family income benefit (FIB) is a form of decreasing term life insurance that, instead of paying a single lump sum on the policyholder's death like a standard term life policy, pays a regular tax-free income -- monthly or annually -- to the beneficiaries for the remainder of the original policy term, replacing all or part of the income the deceased would otherwise have contributed to the household. For example, a 20-year family income benefit policy paying £2,000 a month would, if the policyholder died in year 5, continue paying £2,000 a month to their family for the remaining 15 years of the term, rather than a single lump sum equivalent to that total; because the total amount still owed to the beneficiaries reduces the later a death occurs within the term (there are fewer remaining years of income left to pay), family income benefit is structured similarly to decreasing term insurance and is typically cheaper than an equivalent whole-of-life or level term policy providing the same total protection value, since the insurer's maximum liability falls the closer the policy gets to its end date. Family income benefit is often chosen by families who want to replicate the effect of a salary continuing to be paid, rather than a lump sum that dependants would need to invest or manage carefully to last -- reducing the risk of a large sum being spent too quickly or invested poorly -- and can be combined with a separate lump-sum term life or mortgage protection policy to cover both ongoing income needs and one-off costs such as clearing a mortgage. As with other term life products, the payout is normally free of Income Tax, and writing the policy in an appropriate trust keeps the payments outside the deceased's estate for Inheritance Tax purposes and can allow payments to begin more quickly, without waiting for probate.

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