What is the place of family income benefit?

This article is part of
Guide to financial resilience and protection

So what other options are there?

Family income benefit

According to LV's Wealth and Wellbeing Monitor in the first quarter of 2022, more UK adults are finding their purse-strings tightened.

The study found: 

  • 33 per cent of UK adults are worried by rising prices of everyday items – up from 27 per cent in September 2021.
  • People over 55 are the most likely of all age groups to be worried, with 36 per cent voicing concern about the rising prices of day-to-day items.
  • Women (40 per cent) are more anxious about rising prices than men (26 per cent).

With the pressure on households, an alternative to standard life insurance is family income benefit, which might particularly benefit households with young children.

According to Mike Farrell, protection sales director at LV, research by the insurer has found the cost of raising a child to 18-years-old is £75,436 for a couple but rises to £102,627 for a single parent.

"It is a valuable part of family protection", says Kevin Paterson, managing director of Enduralife. "Because it is income-based, the cost is usually a lot cheaper than term insurance."

In essence, family income benefit is a simple life insurance plan which, according to Setul Mehta, head of business development and adviser services at The Openwork Partnership, is "an undersold but very useful benefit for households".

The aim of the benefit is to pay out a regular, tax-free monthly income rather than a lump-sum, until the end of the term or on death or diagnosis of a terminal illness. 

The policyholder will pay a regular premium (usually monthly although some are paid out annually), and cover will remain in place for a specified length of time. 

"Family income benefit is flexible and works out cheaper than term insurance, as clients could take out a plan for each child if they wanted to adjust the policy term end dates," Farrell adds. 

Lump sum vs regular benefit?

Mehta says: "Its greatest use is to pay off those regular, everyday bills, such as gas, electricity, food, holidays, school clubs, school fees, the mortgage or rent, cost of care or even divorce maintenance payments.

"It can often be positioned as 'if one of you dies, would you prefer a lump sum to be paid at once and you will have to manage the use of it yourself, or would you prefer something that comes into your bank account each month, without you having to think about anything'."

While some families might prefer the lump sum – to pay off a large outstanding debt, for example – others might prefer the routine of a monthly payout.

For example, as Alan Richardson, protection specialist at LifeSearch points out, sometimes a lump-sum insurance payout is made to a teenager, which poses questions as to how money-savvy they might be.

Sean Dunlop, protection proposition manager for Scottish Widows, explains: "Family protection rarely requires a significant lump sum to cope with the loss of a key earner.