In this article I will discuss the benefits of a little known but very important plan called a family income plan which is also known as family income benefit. I will explain how the plan works and further I will go into how this type of plan can benefit the average client looking for life insurance.

First of all it is important to understand the various needs for life insurance and therefore have a greater understanding of were exactly the likes of family income plans fit within good financial planning.

There is generally only a handful of reasons one would have life insurance. The obvious ones are family protection and loans or mortgage protection. Mortgage protection or loan is quite simple you have a liability of a certain amount of money, so best advice dictates that you should insure exactly that amount in the event of death, and if funds allow in the event of a critical illness. Family income benefit does not cater for mortgage or loan protection for reasons that will be later explained.

Family protection is where family income plans fit perfectly. Family protection is all about making sure that your family or your dependents are adequately taken care of financially in the event of your death. In order to suitably meet this need you invariably have to have a figure to insure, an amount of money that your dependents would need in order to maintain their standard of living in the event that the worst actually happens.

A lot of people tend to use their incomes as a good benchmark to work from when ascertaining what level of cover they actually need. The reason for this is during life you may support your family to the tune of 25,000 for example, so it is fair to say that in the event you die they would need 25,000 per annum in order to maintain their standard of living.

Before the likes of family income plans people only had lump sum insurance plans to to take out as protection. This meant people would have to work out what size of lump sum they needed if they wanted an annual benefit of 25,000. Due to the fact tat they would never know what future inflation or investment returns would be meant this was far from an exact science and again from a good financial planning point of view was a poor and risky way to work.

Along came family income benefit. In short this plan pays out the annual required benefit. So if you wanted 30,000 per annum you took the plan out with that level of sum assured and then if the worst happens the plan pays out 30,000 per annum.

The plan went a bit further to ensure that it did the job correctly, by including something called indexation. This meant that each year the value of the benefit actually increased to ensure that if and the when the worst actually happened the amount your loved ones would receive would be the right amount regardless of how high or low inflation had been. Furthermore once claimed it would continue to rise with inflation making sure that continued to maintain that value from the benefit.

So in summary if you are looking for family protection and it is a level of income you are looking to protect, which 99% of time it really should be, then family income benefit is generally the right plan for you. It will ensure you have adequate cover to protect your family in the event of your death and it will continue into the future with inflation protection as a result of the indexation benefit available as an option within the plan.

The Times They are a Changin’

I wonder if Bob Dylan had retirement planning and health care costs in mind when he wrote those lyrics. I happen to be a pretty big Dylan fan, and although his new stuff is great, his message and priorities certainly have changed over the years.

What are your priorities to and through retirement?

As we all get closer to retirement, there is no doubt that our priorities change: Perhaps it starts with substituting a soda for a glass of Cabernet, wearing shoes for actual comfort and of course taking a little less risk with the money we’ve saved. No longer are we or should we be willing to take the chance of significant losses. A National Retirement Risk Index has shown that even if people annuitize all their financial assets including executing a reverse mortgage, 44% will be at risk of being unable to maintain their standard of living in retirement…. And that does not include rapidly rising health care costs. When these costs are included, the percentage of households at risk rises from 44% to 61%! Therefore, making important decisions about our finances as we approach and live in retirement is critical to maintaining our way of life.

Retirement reality
Unfortunately, as the reality sets in that our working years are limited, our concerns begin to change. It’s no longer just about asset allocation and what stocks or funds ought to be a part of that allocation. Outliving assets, health care costs, long-term care, inflation, longevity risk, income and mortgage protection….those are the things that that top our minds. Of course asset allocation and portfolio management are the foundation to successful retirement planning and need careful attention. However, people are living longer than ever due to recent medical innovations which only add to the dilemma. People over age 65 spend four times as much on healthcare as their younger peers, according to AARP research, and that end-of-life care can easily eat up 50% or more of an individual’s lifetime funds. Failing to prepare for retirement’s major expenses can be the biggest challenge to living comfortably in our golden years.

For the most part, the major health care expenses faced by retired households are premiums for Medicare Part B (which covers physician and outpatient hospital services) and Part D which covers drug related expenses: the co-payments related to Medicare covered services and or services not covered at all. Keeping track of all the many concerns is overwhelming to say the least. It is no wonder that in a recent PBS program, people in the street were asked what was their greatest fear about aging. The most frequent answer was ending up in a nursing home.

Below I have illustrated the 7 key steps for a successful retirement. I have called these:

The 7 great wonders of successful retirement planning:

1. Stop losing money: A proper Asset Allocation and Risk tolerance of assets is essential. Most retirees are simply taking too much risk than they should and they are not getting paid enough in return. Review your allocation and rebalance constantly.

2. See the doctor: Treat any health ailments as soon as possible. Many insurance companies are changing policies to not include many seemingly minor health issues such as bunions and hemorrhoids.

3. Pay yourself first: It’s the distribution that counts…not just accumulation. Position your assets and manage them appropriately so they will be able to distribute guaranteed income for life. Say goodbye to those risky investments of yesteryear, and stop holding that old portfolio out of emotional or sentimental reasons. This money has to last you the rest of your life and you can’t make it back. Many people fail to realize that they may spend more time in retirement than they did working.

4. Don’t give Murphy’s Law a chance: Stay covered by insurance all the way up to 65 when Medicaid kicks in, and don’t risk it. You would be amazed at the number of healthy people suddenly get sick the day after their warranty ends. COBRA usually covers you for 18 months so liberation day may be at 63