How To Use Life Insurance To Protect Your Family Finances

such as mortgages and loans etc. Family protection however is more about providing an income to replace that lost as a result of the death of the life assured. Having a lump sum is fine but where do you invest the lump sum to generate the required income? Will the income received be subject to tax and will the lump sum be sufficient to generate the required income for the required term?

A better protection solution

A far better solution is to select a plan which is designed to provide an income to the end of the required term. This type of plan is known as Family Income Benefit (FIB) and has several advantages over lump sum term life assurance. First of all it’s usually quite a bit cheaper than a comparative lump sum plan designed to provide the same income. This is because the risk to the insurer decreases over the term unlike level term insurance. For example, a 20 year level term plan with a sum assured of £100,000 will cost the insurer £100,000 if a valid claim is made up to the end of the 20 year term.

By contrast a Family Income Benefit policy providing an income of £10,000 per annum over a 20 year term could potentially cost the insurer £200,000 if a claim was made shortly after inception. In practice however this is unlikely and therefore the insurers risk will decrease with each claim free year throughout the term. So for example if a valid claim was made during year 10 the insurer would pay the claim to the end of the term i.e. for the