A family income plan can be the solution to your life insurance

A very difficult product to by is life insurance. Without a precise need for example of a loan, mortgage or inheritance tax liability, many people wonder about the amount of cover they should to take out for life insurance.

The majority of folk recognise their need to protect their family with life insurance in the event of their death. They are conscious that their dependents should have enough financial protection which will pay out following their death that will maintain the standard of living they have been used to. Furthermore, their recognition of this goes beyond their understanding of mortgage cover or loan and inheritance tax protection.

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.

Rather than a lump sum benefit, family income plans are taken out to cover an income. Therefore, if the required cover is for 30k per annum income, the formula would point to 300k rather than 30k. Then indexation benefit is included to make sure that upon the death of someone any claim made would increase income levels in line with inflation thus giving an income replacement benefit.

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 keep in mind that many folk including your beneficiaries are without the inclination, aspiration or ability to make an income by investing money, so why force them to be. A much better idea would be to ensure your family has a family income plan which will make their lives easier by providing them a set income with a year on year pay increase.