But deciding whether to buy income protection insurance, critical illness cover or life insurance, in all their various forms, can be confusing. You don’t want to over-buy because it can be expensive. But at the same time, you don’t want to leave your family exposed if either of you is unable to work or, worse still, pass away.

Most life insurance and critical illness cover pays out a lump sum when you make a claim – but not everyone wants a lump sum, as they may prefer to receive a reliable monthly income to replace a salary.

We take a look at two insurance policies that will give you just that.

Family Income Benefit is a form of life insurance. But rather than paying you a one-off lump sum, it will provide your family with a monthly income for the rest of the policy term if you die. It is typically a ‘term’ policy, which means the policy runs for a set period, generally somewhere between 20-30 years, depending on your needs.

You may decide to take a policy out when your first child is born. It can provide reassurance that your family will receive a monthly income until the point at which your children become financially independent, should you pass away before then.

Unlike a life insurance policy, which pays out the entire insured amount upon death, family income benefit will pay out the insured monthly amount until the policy ends. This means that if you were to die 29 years into a 30-year policy, your insurer would only pay out for those last 12 months.

As with other life insurance policies, you can choose the level of benefit:

• Level benefit: You may decide to match the level of your current monthly income on what’s called a ‘level term’. This means the monthly payout will remain the same throughout the entire policy. This may be enough at the start of the policy, but in 20 years, with the effects of inflation, will that still be enough?
• Index-linked benefit: To ensure inflation doesn’t erode the value of the payout over time, there’s something called an ‘index-linked’ policy. Because of the way the payouts are adjusted in line with inflation, their relative value remains the same as the years go by.

As with all insurance policies, there will be exclusions, so read the small print carefully. If you’re in any doubt, you may wish to seek advice from a financial expert.

For more on Life Insurance, see What to ask when taking out a life insurance policy

Family Income Protection is an insurance policy that also provides a monthly income. But rather than paying out upon death, it covers you if you were unable to work due to a specified illness or injury. You can also use it to insure yourself against redundancy on a short-term policy.

According to the Office of National Statistics, 1 in 13 people of working age are off work due to long-term illness or injury. And with statutory sick pay at just £109.40 per week (set to rise to £116.75 per week from 6th April 2024) for a maximum of 28 weeks, it’s important to consider the very real possibility and potential impact of becoming unable to work.

You may have a generous employer who will support you for a few months, but that generosity won’t last forever, and you may find yourself without an income quite quickly. This is when income protection steps in.

You can purchase an income protection policy that will pay you a monthly income until you retire, if you happen to have an accident or become unable to work because of a long-term illness. You can choose a shorter-term policy, which will keep your monthly premiums down – but it will only pay out for the term of the policy.

Income protection policies will cover 50% to 70% of your income, rather than all of it. This ensures you are incentivised to return to work as soon as possible.

As with Family Income Benefit, you can choose an index-linked or level benefit cover. An index-linked policy payout will rise in line with inflation. A level benefit policy won’t track inflation, which means that with a long-term policy the value of the payout will erode over time – but it will have lower monthly premiums.

Another important factor to consider is whether you choose ‘Own’ or ‘Any’ occupation cover.

If you are a trained professional in a lucrative position and take out an ‘any’ occupation policy, you may find your insurer deems you fit enough to work in a low-level job, in which case they may not pay out. The premiums will be higher for an ‘own’ occupation policy, which is tied to your chosen profession – but you may find it’s worth paying the extra.

To read more about income protection, see What to ask when choosing an income protection policy

Although these insurance policies sound very similar, they cover you for entirely different things. Family income benefit pays out upon death, whereas family income protection is designed to protect you if you were still alive but unable to work due to an injury, sickness or redundancy.

You can choose to take one or the other, or both. But before you do, you should seek the advice of a financial planner. It’s best to consider all the different types of protection insurance available to you, alongside your wider financial plan, before deciding which combination is best for you.

An Amber River financial planner will give you their expert advice to ensure all your protection insurance policies are working in tandem, guaranteeing you and your family the right level of protection.