Reprinted Articles

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 are a couple of main reasons as to why it makes sense to get life insurance cover. The principle ones would of course be to protect your family or to protect your loans or mortgages. Mortgage and loan protection is simple. You owe a specific amount of money, and therefore logic dictates that you need to take out sufficient financial cover to protect that amount of money in the event of your death. If it is also financially viable, it is advisable to also take out critical illness cover. Family income benefit does not protect mortgages or loans, and the reasons for that will be explained here in due course.

Family protection is where family income plans fit perfectly. Family protection is all about making sure that your family or your dependents are adequately taken care of financially in the event of your death. In order to suitably meet this need you invariably have to have a figure to insure, an amount of money that your dependents would need in order to maintain their standard of living in the event that the worst actually happens.

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.

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.

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.

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.

Last 5 posts by Chris Clare

• What is Critical illness insurance cover? do I need it? - April 30th, 2008
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• Getting a mortgage in the credit crunch - April 13th, 2008
• Whole of life insurance. Its uses. - April 13th, 2008

Tags: Life Insurance