TL;DR
Keep your family’s income protected against rising prices For any parent or guardian, the thought of not being around to provide for your children is a deeply unsettling one. We plan for school runs, holidays, and future milestones, but it’s just as crucial to plan for the unthinkable. How would your family manage financially if your income suddenly disappeared?
Key takeaways
- You choose the income amount: You decide how much tax-free income your family would need each year.
- You choose the policy term: You decide how long you want the cover to last (e.g., 20, 25, or 30 years).
- You pay a monthly premium: This keeps your policy active.
- The payout: If you were to pass away during the term, the policy would start paying the chosen income to your family. These payments would continue from the date of the claim until the policy's end date.
- Retail Prices Index (RPI): A long-standing measure of inflation that includes housing costs like mortgage interest payments. It often runs slightly higher than CPI.
Keep your family’s income protected against rising prices
For any parent or guardian, the thought of not being around to provide for your children is a deeply unsettling one. We plan for school runs, holidays, and future milestones, but it’s just as crucial to plan for the unthinkable. How would your family manage financially if your income suddenly disappeared?
While a traditional life insurance policy provides a lump sum, which is invaluable for clearing large debts like a mortgage, it doesn't solve the problem of ongoing monthly expenses. Bills, food, childcare, and all the other costs of running a home would continue to arrive. This is where Family Income Benefit (FIB) insurance comes in, offering a smart, affordable, and often overlooked solution.
However, in a world of fluctuating economic conditions, a standard FIB policy might not be enough. The rising cost of living can silently erode the value of your future protection, leaving your family with less purchasing power than you intended. This is why inflation-linked Family Income Benefit is not just an add-on; it's an essential feature for securing your family's long-term financial wellbeing.
This comprehensive guide will explore everything you need to know about Family Income Benefit with inflation linking, helping you understand how to create a financial safety net that stands the test of time.
Understanding Family Income Benefit: The Basics
Family Income Benefit is a specific type of life insurance designed to replace a lost stream of income. Instead of paying out a single, large lump sum upon death, it provides a regular, tax-free monthly or annual income to your loved ones.
Think of it as a replacement salary that continues to support your family until a date you've chosen. Typically, this is set to coincide with a time when your children would likely be financially independent, such as after they finish university.
How does it work?
- You choose the income amount: You decide how much tax-free income your family would need each year.
- You choose the policy term: You decide how long you want the cover to last (e.g., 20, 25, or 30 years).
- You pay a monthly premium: This keeps your policy active.
- The payout: If you were to pass away during the term, the policy would start paying the chosen income to your family. These payments would continue from the date of the claim until the policy's end date.
For example, if you take out a 25-year policy with a £2,000 monthly income and pass away in year 5, your family would receive £2,000 every month for the remaining 20 years of the term.
Family Income Benefit vs. Level Term Life Insurance
Many people are more familiar with standard life insurance, which pays a lump sum. Both have their place, and they often work best in tandem.
Here’s a simple comparison:
| Feature | Family Income Benefit | Level Term Life Insurance |
|---|---|---|
| Payout Type | Regular, tax-free income | One-off, tax-free lump sum |
| Primary Purpose | Replace lost monthly income for living costs | Pay off large debts (e.g., mortgage) |
| Cost | Often more affordable for a high level of cover | Can be more expensive for the same total payout |
| Payout Duration | Payments continue until the policy term ends | A single payment is made upon a valid claim |
| Best For | Covering day-to-day family expenses | Clearing major financial liabilities |
Because the insurer's potential liability decreases as the policy term progresses (i.e., they'd pay out for fewer years if you died later in the term), Family Income Benefit is often significantly more affordable than a lump sum policy with an equivalent total payout.
The Silent Financial Risk: Why Inflation Matters for Your Insurance
We’ve all felt the pinch of rising prices. A loaf of bread, a tank of petrol, the monthly energy bill—everything seems to cost more than it did a year ago. This is inflation, and it's one of the biggest hidden threats to your long-term financial planning.
According to the Office for National Statistics (ONS), the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.2% in the 12 months to December 2023. While rates are forecast to fall, the Bank of England's target is 2%, meaning prices are still expected to rise year on year. A period of higher inflation, like the one experienced in 2022-2023, serves as a stark reminder of how quickly the value of money can be eroded.
A "level" Family Income Benefit policy pays out a fixed amount. A £30,000 annual income might seem perfectly adequate today, but what will it be worth in 10, 15, or 20 years?
Let's look at the impact of a modest, long-term average inflation rate of 3% on a fixed annual income of £30,000. (illustrative estimate)
| Year | Fixed Annual Payout | Real-World Purchasing Power (at 3% avg. inflation) |
|---|---|---|
| 2025 | £30,000 | £30,000 |
| 2030 | £30,000 | £25,878 |
| 2035 | £30,000 | £22,333 |
| 2040 | £30,000 | £19,275 |
| 2045 | £30,000 | £16,637 |
As the table shows, after 20 years, the £30,000 income would only have the purchasing power of around £16,637 in today's money. This could leave your family facing a significant financial shortfall, unable to maintain the standard of living you had planned for them. (illustrative estimate)
Future-Proofing Your Family's Finances: The Power of Index-Linking
This is where an index-linked or inflation-proofed Family Income Benefit policy becomes essential. It’s designed specifically to combat the corrosive effect of inflation.
An index-linked policy automatically increases your level of cover each year to ensure the future payout keeps pace with the rising cost of living. This means the income your family receives will have the same real-world value you intended, whether a claim is made in year 2 or year 22.
How Does Indexation Work?
With an index-linked policy, both your sum assured (the annual income amount) and your monthly premium will increase each year. The increase is typically tied to a recognised measure of inflation.
- Retail Prices Index (RPI): A long-standing measure of inflation that includes housing costs like mortgage interest payments. It often runs slightly higher than CPI.
- Consumer Prices Index (CPI): The more commonly used government measure of inflation, which tracks the price of a basket of consumer goods and services.
- Fixed Percentage: Some insurers offer a fixed annual increase, for example, 5% per year, regardless of the official inflation rate.
Each year, on the policy anniversary, your insurer will write to you. They will outline the new level of cover and the corresponding new premium. You typically have the option to accept the increase or decline it. If you decline, your cover will usually remain fixed at its current level for the remainder of the term, and your premiums will no longer increase.
While this means your premiums will rise over time, the increases are designed to be manageable and are a small price to pay for the certainty that your family's future income is protected against devaluation.
Is Inflation-Linked FIB Right for You and Your Family?
While almost anyone with financial dependents can benefit from Family Income Benefit, it is particularly vital for certain groups. The need for inflation-linking becomes even more critical the longer your policy term is.
Here are some of the people who should strongly consider an index-linked FIB policy:
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Families with Young Children: This is the most common and compelling use case. If your children are small, you'll likely need a policy term of 20 years or more to see them through to financial independence. Over such a long period, inflation-proofing is not a luxury; it's a necessity. The regular income can cover everything from childcare and school uniforms to hobbies and university costs.
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Single Parents: As the sole financial provider, your income is the family's entire support system. Replacing it is not just important; it's critical. An index-linked FIB ensures your children's financial stability is maintained no matter what.
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Homeowners with a Mortgage: Many people buy lump-sum life insurance to clear the mortgage, which is a fantastic first step. But what about the other bills? Council tax, utilities, insurance, and maintenance costs don't disappear when the mortgage is paid. An FIB policy can run alongside a mortgage protection policy to cover these essential ongoing expenses.
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Self-Employed Professionals, Freelancers, and Company Directors: Your income might be less predictable than a PAYE employee's, but your family's outgoings are just as regular. An FIB policy provides a stable, guaranteed income stream for your loved ones. While business protection policies like Key Person Insurance or Executive Income Protection protect your business, an FIB policy is designed purely to protect your family's personal finances.
At WeCovr, we specialise in helping everyone from PAYE employees to business owners find the right blend of personal and business protection. We can help you understand how different policies work together to create a comprehensive safety net.
How Much Cover Do You Really Need? A Practical Guide
Calculating the right level of cover is one of the most important steps. The goal is to accurately replace the financial gap that your death would create. Under-insuring could leave your family struggling, while over-insuring means you're paying higher premiums than necessary.
Follow these simple steps to get a good estimate.
Step 1: Calculate Your Family's Monthly Outgoings Be thorough. Go through your bank statements and list everything your income currently covers.
Step 2: Subtract Any Continuing Income If you have a partner, their income will still be coming in. You should also consider any other reliable income sources, such as rental income.
Step 3: Factor in State Support (with caution) The surviving parent may be eligible for state help, such as the Bereavement Support Payment. As of 2025, this provides an initial lump sum followed by up to 18 monthly payments. However, this support is limited and short-term. It's a helpful cushion but should not be the foundation of your family's long-term financial security.
Step 4: The Result is Your Income Gap The final figure is the monthly income your Family Income Benefit policy should aim to provide.
Use this simple worksheet to guide you:
| Expense Category | Estimated Monthly Cost (£) |
|---|---|
| Mortgage / Rent | |
| Council Tax | |
| Utilities (Gas, Elec, Water) | |
| Broadband, TV & Phones | |
| Food & Groceries | |
| Transport (Car, Public Transport) | |
| Childcare / School Fees | |
| Debt Repayments (Loans, Credit Cards) | |
| Insurance (Home, Car) | |
| Hobbies & Leisure | |
| A: Total Monthly Outgoings | £ |
| Surviving Partner's Net Income | £ |
| Other Reliable Income | £ |
| B: Total Continuing Income | £ |
| Your Monthly Income Gap (A - B) | £ |
Once you have your monthly gap, multiply it by 12 to get the annual income you need from your policy. This is the figure you'll need when getting quotes.
What Influences the Cost of Your Family Income Benefit Premiums?
One of the most attractive features of Family Income Benefit is its affordability. However, the exact premium you pay will depend on a range of personal factors. Insurers are assessing the level of risk they are taking on.
Here are the key factors that determine your premiums:
- Age: The younger you are when you take out the policy, the cheaper your premiums will be.
- Health and Medical History: Insurers will ask about your current health, family medical history, and any pre-existing conditions.
- Smoker Status: This is one of the biggest factors. Smokers and vapers will pay significantly more than non-smokers. Insurers typically require you to be nicotine-free for at least 12 months to be considered a non-smoker.
- Lifestyle: Your alcohol consumption, hobbies (e.g., extreme sports), and travel plans can also influence the cost.
- Occupation: A desk-based job is considered low-risk, whereas a high-risk job like a scaffolder, commercial diver, or electrician working at heights will result in higher premiums.
- The Amount of Cover: A higher annual income payout will naturally cost more.
- The Policy Term: A 30-year term will be more expensive than a 15-year term.
- Indexation: Choosing an inflation-linked policy will slightly increase the initial premium compared to a level policy, but this small extra cost provides invaluable long-term protection.
Navigating these factors and comparing quotes from different insurers can be complex. Working with an expert broker like WeCovr simplifies the process. We compare plans from all the major UK insurers to find the right cover at a competitive price, ensuring you don't pay more than you need to.
Building a Complete Financial Safety Net: FIB and Other Insurances
Family Income Benefit is a powerful tool, but it's rarely a standalone solution. The most robust financial protection plans layer different types of insurance to cover different risks.
Here’s how FIB fits into a wider protection portfolio:
- Life Insurance (Lump Sum): As mentioned, a lump sum policy (like Level Term or Decreasing Term) is perfect for clearing large one-off debts. The most common use is to pay off the remaining mortgage balance, ensuring your family has a secure, debt-free home.
- Critical Illness Cover: What if you don't pass away, but suffer a serious illness like a heart attack, stroke, or cancer? You could be unable to work for a long time, and your income would stop. Critical Illness Cover pays a tax-free lump sum on diagnosis of a specified condition. This money can be used to cover medical bills, adapt your home, or simply replace lost earnings while you recover. Many FIB policies can be bought with integrated Critical Illness Cover.
- Income Protection Insurance: This is arguably as important as life insurance. It’s designed to protect you and your income if you're unable to work due to any illness or injury. It pays a regular monthly benefit (usually 50-60% of your gross salary) until you can return to work, retire, or the policy term ends. It covers your own living costs, allowing your family to maintain its lifestyle while you are ill.
Specialist Cover for Business Owners and Directors
If you run your own business, you have additional considerations:
- Executive Income Protection: This is a company-owned policy that protects a director's income. It is paid for by the business and is typically treated as an allowable business expense, making it a highly tax-efficient way to secure your personal income.
- Key Person Insurance: This protects the business itself. The policy is taken out by the company on the life of a 'key' individual whose loss would have a major financial impact. The lump sum payout helps the business recruit a replacement, cover lost profits, or repay business loans.
- Gift Inter Vivos Insurance: For those planning their estate, this specialist policy can cover a potential Inheritance Tax (IHT) liability on large gifts made within seven years of death.
At WeCovr, we believe in a holistic approach to wellbeing. That’s why, in addition to helping you find the right insurance, we provide all our customers with complimentary access to our AI-powered calorie tracking app, CalorieHero. It's our way of supporting your health goals today, while we help you protect your family’s financial future for tomorrow.
When the Unthinkable Happens: How a Family Income Benefit Claim Works
The last thing a grieving family wants is a complicated and stressful claims process. Fortunately, for a valid policy where all information was disclosed correctly at the outset, the claims process for Family Income Benefit is usually straightforward.
- Contact the Insurer: The surviving partner or the executor of the will should contact the insurance company as soon as they are able. They will need the policy number.
- Provide Documentation: The insurer will require some paperwork, which primarily includes the original death certificate and a claims form.
- Claim Assessment: The insurer's claims team will review the documents to ensure the claim is valid and falls within the terms of the policy.
- Payout Begins: Once approved, the insurer will begin making the regular monthly or annual payments to the nominated beneficiary. These payments will continue until the end date of the original policy term.
It's natural to worry if an insurance company will actually pay out. The good news is that the UK protection industry has an excellent track record. According to the Association of British Insurers (ABI), in 2023, a record 99.3% of all life insurance claims were paid out, amounting to over £4.68 billion in support for bereaved families. This demonstrates that as long as you are honest and accurate in your application, you can be confident that the policy will do its job when it's needed most.
Boost Your Wellbeing and Potentially Lower Your Premiums
The links between health, longevity, and insurance premiums are direct. A healthier lifestyle not only improves your quality of life but can also make your protection policies significantly more affordable. Insurers reward lower-risk individuals with lower premiums.
Here are some practical steps you can take:
- Embrace a Balanced Diet: A diet rich in fruits, vegetables, and whole grains while being low in processed foods, sugar, and saturated fats can reduce your risk of numerous health conditions. Tools like the CalorieHero app can help you track your nutrition and make healthier choices.
- Stay Active: The NHS recommends adults aim for at least 150 minutes of moderate-intensity activity (like brisk walking or cycling) or 75 minutes of vigorous-intensity activity (like running or swimming) a week.
- Prioritise Sleep: Consistently getting 7-9 hours of quality sleep per night is vital for physical and mental health, reducing stress and boosting your immune system.
- Stop Smoking: Quitting smoking is the single most impactful thing you can do to lower your life insurance premiums. After 12 months without any nicotine products (including vaping), you can be re-classified as a non-smoker, which can often cut your premiums in half.
- Moderate Alcohol Intake: Sticking within the recommended guidelines of no more than 14 units of alcohol per week can have a positive impact on your health and your premiums.
Securing Your Family's Future is Priceless
Planning for a future you won't be in is a profound act of love and responsibility. It provides peace of mind, knowing that whatever happens, your family will have the financial stability to continue living their lives, pursue their dreams, and grieve without the added burden of financial worry.
Family Income Benefit offers an affordable, logical way to protect your family's day-to-day lifestyle. By choosing an index-linked policy, you take the crucial extra step of future-proofing that protection against the silent erosion of inflation. You ensure that the income you leave behind maintains its power to pay the bills, buy the groceries, and fund the future you envision for them.
Navigating the world of insurance can feel daunting, but you don't have to do it alone. The expert, friendly advisors at WeCovr are here to help. We'll take the time to understand your unique circumstances, answer your questions in plain English, and search the entire market to find a policy that's perfectly tailored to your family's needs and your budget.
Is the income from a Family Income Benefit policy taxable?
What happens if I outlive the policy term?
Can I put my Family Income Benefit policy in a trust?
What is the difference between RPI and CPI indexation?
Can I have more than one life insurance policy?
Does the policy pay out if I die while travelling abroad?
Sources
- Office for National Statistics (ONS): Mortality, earnings, and household statistics.
- Financial Conduct Authority (FCA): Insurance and consumer protection guidance.
- Association of British Insurers (ABI): Life insurance and protection market publications.
- HMRC: Tax treatment guidance for relevant protection and benefits products.
