The benefits of choosing a family income plan.
Chris Clare
There exists in the marketplace a type of plan called the family income plan, also known as family income benefit. It is fairly unknown at this stage, and so in this article we will attempt to explain it simply and also highlight the benefits it may have to you. We will also show how this plan can be helpful to the average customer looking for life insurance.
Before we start, it is important to outline the reason for good life insurance. By understanding the need for life insurance, we will then be able to see how the family income plan can effectively fit in to your life with regards to successfully planning your finances.
Normally the main two reasons as to why we need life insurance is to protect our family or to provide financial cover for a mortgage or loan. It is fairly easy to work out how much cover is needed when it comes to mortgage or loan protection. You basically need cover to the value of the loan or mortgage so as to protect the money in case you die. It is also advisable to take out critical illness cover if you can afford to. However, family income benefit does not cover mortgages for reasons which shall be explained later.
Protecting your family is where family income benefit comes into play. The basic description of it is that it is there to adequately protect your family financially should you die. In order to meet this need, you first of all need to have a figure in mind. That figure needs to reflect the amount of money you think your family will need to continue to live in the manner to which they are accustomed should you pass away and no longer be able to provide for them.
So an ideal place to start when assessing how much cover you need is to look at your annual salary. If you are currently earning 25000 per year, you will need to arrange a policy that will pay out 25000 per year to your family after your death. By arranging this amount of cover, your family will be able to live in the same financial comfort that they did when you were still alive and earning your yearly income.
Before the likes of family income plans people only had lump sum insurance plans to to take out as protection. This meant people would have to work out what size of lump sum they needed if they wanted an annual benefit of 25,000. Due to the fact tat they would never know what future inflation or investment returns would be meant this was far from an exact science and again from a good financial planning point of view was a poor and risky way to work.
And so the need for a policy which would pay out the same amount every year led way to the family income plan. If you needed 30000 paid out every year, you took out a policy for that amount, and after death 30000 was guaranteed to be paid out every year thereafter.
Another facet called indexation was also introduced in order to make the policy function even more efficiently. Indexation means that the value of the fund would be increased each year to allow for inflation. In this way, no matter how inflation has changed the market, your family would be guaranteed to be adequately provided for. The policy would also continue to rise once it had been paid out, so your family will continue to benefit from this aspect of the plan after your death.
Most life insurance plans should be providing cover for your salary, and if you also need your family protected, then you should probably make the family income plan the policy for you. You can be sure that your family is not only protected directly after your death, but with the indexation option included, you also know that the level of protection will increase proportionately for them in the years to come. After all, peace of mind for your family is exactly what life insurance should be.
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