You may have heard recently about family income plans as a form of life insurance. In these next few paragraphs, we will aim to explain just what exactly a family income plan, or family income benefit as it is also known, is, and how it may of benefit ti you as a life insurance plan.
First of all it is important to understand the various needs for life insurance and therefore have a greater understanding of were exactly the likes of family income plans fit within good financial planning.
There is generally only a handful of reasons one would have life insurance. The obvious ones are family protection and loans or mortgage protection. Mortgage protection or loan is quite simple you have a liability of a certain amount of money, so best advice dictates that you should insure exactly that amount in the event of death, and if funds allow in the event of a critical illness. Family income benefit does not cater for mortgage or loan protection for reasons that will be later explained.
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.
A lot of people tend to use their incomes as a good benchmark to work from when ascertaining what level of cover they actually need. The reason for this is during life you may support your family to the tune of 25,000 for example, so it is fair to say that in the event you die they would need 25,000 per annum in order to maintain their standard of living.
Before the family income plans existed the only real form of life insurance policy available was in lump sum form. The difficulty with this sort of policy is that you had to work out one lump figure which you felt would be sufficient to protect your family after your death and pay out 25000 per annum. Also, when taking into account the changing rates of inflation and the unpredictable returns on investments, this lump sum figure could be very difficult to calculate. It could, and often did, prove very risky.
Therefore family income benefit was created. This plan basically pays out the amount of money required annually. If your annual salary was 30000, you covered this amount of money so that in the event of your death, the policy pays out 30000 per year.
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.
And so, if the sort of protection you need is family protection and you have a salary to protect aswell, which is more often than not the case, you should certainly consider taking out family income benefit. Your family will be adequately provided for, and because of the indexation clause included, you can be safe in the knowledge that your family will also be covered in the case of future inflation. Family income benefit is definitely a god way to go.