Benefit when pinching fool's instrument (7)
I believe the answer is:
bassoon
'instrument' is the definition.
(bassoon is a kind of instrument)
'benefit when pinching fool's' is the wordplay.
'benefit' becomes 'boon' (I've seen this before).
'when pinching' indicates putting letters inside.
'fool's' becomes 'ass' (ass is a kind of fool).
'boon' placed around 'ass' is 'BASSOON'.
(Other definitions for bassoon that I've seen before include "Hollow instrument" , "So-so ban over the instrument" , "Large woodwind instrument" , "wind player" , "Tenor of the oboe family" .)