Family Income Policy

A Family Income Policy is an insurance policy that provides extra income during the period when children are growing up. This life insurance contract combines ordinary life and decreasing term insurance.
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Family Income Policy

A Family Income Policy is a form of life insurance that provides supplementary income to the beneficiaries of the insured during a predetermined period, typically when the insured’s children are growing up. This type of policy combines the features of ordinary life insurance and decreasing term insurance.

Definition

A Family Income Policy guarantees income payments to beneficiaries until the end of a specified period if the insured passes away before that period concludes. If the insured individual is still alive at the end of the designated period, the policy’s face amount is paid out to the policyholder.

Key Features

  1. Combined Insurance: The policy integrates ordinary life insurance with decreasing term insurance.
  2. Income Payments: Beneficiaries receive regular income payments if the insured dies before the end of the specified period.
  3. Face Amount Payout: If the insured survives the specified period, the total face amount of the policy is paid to the policyholder.
  4. Focus on Dependents: Designed specifically to provide financial support during the years when the insured’s dependents are typically growing up and financially dependent.

Examples

  1. Example 1: John purchases a family income policy that specifies a 20-year period. If John dies within those 20 years, his children receive $2,000 monthly until the end of the 20-year period. If John survives beyond the term, he receives the face amount of the policy, say $500,000.

  2. Example 2: Sarah, a mother of two, buys a family income policy with a 15-year income period. Should Sarah pass away within 15 years, her children will receive monthly income payments until they are financially independent.

Frequently Asked Questions

1. What is the main benefit of a Family Income Policy?

  • The main benefit is to provide consistent financial support to the insured’s dependents during their growing years, thus helping to cover expenses like education and living costs.

2. How does a Family Income Policy differ from ordinary life insurance?

  • Unlike ordinary life insurance, which pays a lump sum to beneficiaries upon the policyholder’s death, a Family Income Policy provides periodic income payments for a specific duration, ensuring consistent financial support.

3. Can the income period in a Family Income Policy be adjusted?

  • Typically, the income period is predetermined and cannot be adjusted after the policy is purchased. It is important to select a period that aligns with your dependents’ financial needs.

4. What happens if the insured outlives the income period?

  • If the insured outlives the income period, they receive the face amount of the policy at the end of the term.
  1. Ordinary Life Insurance: A type of life insurance with a fixed premium and death benefit for the policyholder’s entire life.
  2. Decreasing Term Insurance: A type of term life insurance where the death benefit decreases over time.
  3. Beneficiary: The person or entity designated to receive benefits from an insurance policy or will.
  4. Face Amount: The death benefit amount stated on a life insurance policy.

Online References

Suggested Books for Further Studies

  1. “Principles of Life Insurance” by Robert E. Kuen

  2. “The New Life Insurance Investment Advisor” by Ben Baldwin

  3. “Life Insurance: A Consumer’s Handbook” by Joseph M. Belth

Fundamentals of Family Income Policy: Insurance Basics Quiz

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