A Guide To Life Insurance - Term Assurance Example 3 - Read On ....

 

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Term Assurance Example 3 - Read On...

Level term assurance does suffer from the disadvantage that it provides lump sums, whereas the guarantee of financial security needed for a family is regular income.

Capital can of course be invested to generate income, but it is impossible to predict how much, and the decision of how to invest it may be difficult.

For these reasons life insurance companies have adapted term assurance to meet the need for income through policies usually referred to as family income benefit, or FIB for short.

The FIB policy guarantees the payment of a specified annual amount (tax-free) to the dependants of the assured if he or she should die within a specified term. The income is payable from the date of death to the end of the term, so that if the assured died after 5 years of a 15-year term his dependants would receive the income for 10 years, but if he died after 12 years they would receive it for only 3.

The effect of this is to concentrate the benefits of the FIB into the early years of the term, with cover gradually reducing throughout the term, whereas level term benefits remain the same. Thus FIB is not a substitute for level term but a complementary type Of policy designed to provide the maximum benefit for a family deprived of the breadwinner in the early years.


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Example
Mr Black wishes to provide for his wife and children.
He wants to ensure that they have an income of £250 a week to make up for the absence of his earnings.
To provide this benefit ( £22,500 per annum) over 25 years will cost the 37-year-old Mr Black about £280 per annum before tax relief. To ensure his wife's security if he should die near the end of this period, Mr Black also takes out a level term assurance with a sum assured of £220,000........ see: click here for More Term Assurance Examples2


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