In this article I will discuss the benefits of a little known plan called the family income plan which is also known as family income benefit. I will explain how the plan works and further I will go into how this type of plan can benefit the average client looking for life insurance. Let us first consider why it is that one needs life insurance.
If you assess the reasons why you need life cover, you may then be able to decide whether or not the family income plan will be suitable for your financial circumstances. 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. If protecting your family is your main priority, then family income benefit is a good way to go. The idea is that you are arranging for adequate financial protection to replace the salary you would have earned for your family members in the event of your passing. You therefore need to ascertain how much money you believe your family will need to live on comfortably after you die.
Most people use their salary figure to ascertain just how much cover they are going to need to protect their family in the future. Let us say, for example, that you earn 25000 per year. That would therefore mean that you are going to need 25000 worth of cover so that your family can be provided comfortably for in the future in the event of your death.
In the past, the only form of life insurance plan available was a lump sum insurance policy. This basically meant that you had to work out what lump sum was needed to be accrued in order to provide your family with a yearly income of 25000 after your death. However, no-one can predict the future, and so with fluctuating interest rates and rates of inflation prone to change, this method of life insurance was far from ideal. Also, from a financial viewpoint, it was a risky option and again not the best solution.
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. So in summary if you are looking for family protection and it is a level of income you are looking to protect, which 99% of time it really should be, then family income benefit is generally the right plan for you. It will ensure you have adequate cover to protect your family in the event of your death and it will continue into the future with inflation protection as a result of the indexation benefit available as an option within the plan.
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