| A simple term life insurance policy is one of the most | | | | maximum return and will the income generated be |
| effective ways to protect your family and financial | | | | subject to tax? Plus will it be sufficient to meet the |
| dependents against the premature death of the main | | | | financial needs of the surviving dependants? |
| breadwinner. | | | | In many cases, a more suitable solution is protection |
| Like any insurance, price tends to drive the purchase | | | | that's designed to pay a regular income to the end of |
| of life cover before the quality of a policy and its | | | | the required term. Also known as Family Income |
| ultimate suitability are considered. But focusing too | | | | Benefit this cover has many advantages over it's lump |
| much on the monthly cost is not always the best way | | | | sum alternative. One of it's major pluses is that it's |
| to measure good value cover. | | | | usually cheaper than a like for like lump sum policy as |
| A good example of this is often found when buying | | | | the risk to the insurance company decreases over the |
| term life insurance which provides a number of policy | | | | policy term. For example, a 20 year level term |
| options including two types of premium, guaranteed or | | | | assurance plan for £100,000 will cost the |
| reviewable. Guaranteed premiums are, as the name | | | | insurance company £100,000 if a claim is paid at |
| suggests, fixed and guaranteed by the insurance | | | | any time up until the end of the policy term. |
| company not to increase. Whereas, reviewable | | | | Compare this to a Family Income Benefit policy |
| premiums are subject to regular reviews, usually every | | | | providing an annual income benefit of £10,000 |
| five years and can be increased at the insurer's | | | | over the same 20 year term which could potentially |
| discretion. Yes, guaranteed premiums are more | | | | cost the insurer £200,000 if a claim was made |
| expensive than reviewable rates but they should be | | | | shortly after inception. In practice this is unlikely so the |
| seriously considered, especially if you intend to take out | | | | risk to the insurer decreases with each year the policy |
| a policy for ten years or more. This is because the | | | | remains in force. If a claim was made at year 10 the |
| amount of each potential premium review increase is | | | | insurer would have to pay the annual income for the |
| likely to rise the older you get. | | | | next 10 years at a lower cost of £100,000. |
| In reality, a more accurate guide to the best value | | | | Another feature of Family Income Benefit is that the |
| cover is to match the right policy to your need for | | | | annual income can be paid on an increasing or indexed |
| protection. Another good example is the popularity of | | | | basis if selected from inception. The effect of this |
| lump sum cover when applying for a life insurance | | | | option is that the real value of the cover is maintained |
| policy for family protection. A lump sum plan is fine if | | | | and not eroded by inflation over time. |
| you need to provide large sums to pay off debts such | | | | So overall, Family Income Benefit can be an almost |
| as a mortgage. True family protection is more about | | | | perfect solution to protecting your dependents |
| ensuring that an income is provided to replace that lost | | | | financially from the premature death of a vital family |
| on the death of the main income earner. When a lump | | | | breadwinner. Not only is it often the cheapest form of |
| sum policy is used for family protection the potential | | | | family protection but also currently provides the annual |
| problem is how to generate the required income from | | | | income benefit totally free of tax. |
| the lump sum. Where should it be invested for | | | | |