A Life insurance solution can be a family income plan
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?”
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.
Most people accept the need for parity between the incomes which they generate now and those which need to be provided at a later date. However, taking all this into account how can we ensure the life insurance plan we commit ourselves too will pay an adequate amount comparison to our salaries even though this amount is usually a lump sum.
Setting aside assumption and intricate calculation that may neither be accurate for future situations, nor scientific, the majority of financial advisers reckon using a ten times formula. In other words, if annual income is 20k then a lump sum would be 200k. However, taking into account inflation on investment returns etc and if the figures prove to be incorrect in the future, then a shortfall in income may be generated.
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.
When taking all this into consideration, the family income plan will be the most suitable product because all the doubt surrounding life insurance is removed, that is providing it is the income that is to be protected or an amount of money each year rather than a capital amount like a loan or mortgage etc.
Considering most people are without the tenacity, ability or wherewithal to generate an income through investment, if they are the ones who are to be protected, then why compel them. Simplify their lives by giving them an annual set income with pay rises attached; ensure you put in place for your family a family income plan.
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