What is Family Income Life Insurance?
Family income life insurance, also called a family income benefit (FIB), is a type of decreasing term life insurance that’s designed to replace income for the family members the insured leaves behind. Some family income policies include a whole life insurance component.
How family income benefits work
Family income life insurance policies set a defined term, like 20 or 30 years. Beyond selecting the policy term, the policy owner also decides how much they want their family to receive from the policy (i.e., the benefit) on a monthly basis.
Unlike most other life insurance policies, which pay out a lump sum, family income benefits get paid out monthly. In other words, the policy owner chooses how much they want their loved ones to receive on a regular basis for the remainder of their policy term. These monthly payments usually roughly align with the insured’s monthly income.
These policies are classified as decreasing term policies because the monthly benefit stays the same whenever the insured dies. Say they purchased a family income life insurance policy to pay $4,000 out with a 20-year term. If the insured passes away in year five of the policy, the beneficiaries will receive $4,000 a month for the remaining 15 years of the policy. But if they pass away at year 15, the beneficiaries only receive the $4,000 a month for the remaining five years.
These policies are designed to make financial management easier on the family that outlives the insured. Because the money comes in as periodic chunks, there’s a reduced need to budget and plan.
What happens after the end of the policy term
Some family income policies blend decreasing term insurance with whole life insurance. That means that at the end of the policy term, the whole (i.e., permanent) portion of the policy kicks in. If the insured outlives the policy term and has a whole life insurance element in their policy, their beneficiaries will receive a lump-sum death benefit payment when the insured passes away.
Not all family income policies include this component. It’s important to review your policy’s details to understand what will happen at the end of the policy term.