A Family Income Plan Can Be the Solution to Your Life Insurance

Life insurance can be a very complex product to take out. Unless you have a specific need, such as a mortgage, loan or inheritance tax liability to cover, the question on most peoples lips is "how much cover do I take out?"

Beyond covering mortgages, loans and inheritance tax most people do understand that they need life insurance to cover their family. They do realise that they need to insure themselves against death to make sure that should they die there is enough money to pay out to their dependents so that they can continue to live the lifestyle that they have become accustomed to.

It is common knowledge that to protect this issue you need to somehow provide an income that is similar to the income that you currently get. But once you understand this how do you take out a life insurance plan, which is generally for a lump sum, to pay out enough so that it will provide an income adequate to match your salary.

Without doing complex calculations and making some assumptions that may or may not be right in the future this is far from a science. Most financial advisers suggest a 10 times formula. So if you earn 20,000pa then 200,000 as a lump some should be enough. But again this depends on inflation investment returns and so on and if these figures turn out to be wrong in the future the income that it generates could fall short.

So knowing all this what is the solution and why? Well obviously as the title suggest a family income plan is the solution. The reason is all to do with how family income benefit works, unlike traditional life insurance, were the benefit pays out a lump sum and the recipients of the benefit then have to invest the money to produce an income and hope that income is enough for the amount of time they actually need it, family income benefit just pays out the income.

A family income plan is taken out to cover an income and not for a lump sum benefit. So say you want to cover a 30,000pa income rather than taking out 300,000 as the formula suggests you take out a family income plan for 30,000. You include indexation benefit which makes sure that when a claim takes place the income rises with inflation and you basically have an income replacement benefit when someone dies.

This type of plan takes all the uncertainty out of life insurance and as long as it is an income you are looking to protect or an amount of money per annum and not a capital sum such as a mortgage or loan etc then a family income plan is going to be the most suitable product almost every time.

You have to remember that the majority of people don't have the skill inclination or desire to invest money to produce income. So when these people may be your beneficiaries why make them. Make their lives simple give them a set income with a pay rise each year, make sure you family has a family income plan.

From ezinearticles.com, By Chris Clare