First published in FAnews August 2019

If we take a step back and consider why an individual takes out Life cover in the first place – to take care of your loved one’s income needs in the event of your death – a lump sum may not always be the best solution.

While a traditional Life Lump Sum benefit is the perfect way to settle large debts, estate duty or pay for once-offexpenses, there are many risks associated with only providing a lump sum for your beneficiaries. One of these, is that it’s impossible to know how much cover beneficiaries will need. Not knowing this could result in being either over- or under-insured.

There are also clear investment, longevity and inflation risks. And, human nature being what it is, a lump sum poses very real behavioural risks. We are notoriously irrational, our impulsive nature poses a real threat when combined with the appeal of a lump sum pay-out. Choosing to pay off debt and other financial burdens with our current earnings can be challenging at the best of times - why then do we imagine it’ll be easier when we’re presented with a six-figure lump sum repayment? There’s very little guarantee that any beneficiary will in fact use these funds to meet their original purpose, over spur-of-the-moment whims like a new sports car or getaway trips.

On the contrary, opting for Life Income benefits often proves to be more effective. A Life Income benefit is specifically designed to remove these risks, to ensure your beneficiaries are always taken care of.

Income benefits provide beneficiaries with the certainty of an income for as long as they need it, without the stress of worrying about inflation, how to invest the money or the money running out. Income benefit premiums are typically more cost-effective than the lump sum equivalent, and if you invested those savings, they could increase their retirement fund significantly. What’s more, Income benefits are tax-free.

Life Income offers the flexibility to structure benefits to meet the unique income needs of various dependants, for specific payment periods. And the income payments can increase every year to keep up with inflation.

Income benefits also offer a number of specific advantages:

  • Spouse’s living expenses – you can opt to leave a monthly income to your spouse to cover day-to-day and household expenses.
  • Children’s education – take care of your children’s education costs by selecting an income amount for a specified period.
  • Maintenance payments – for divorced parents, Life Income is a great benefit to ensure your children receive a monthly maintenance income.
  • Single parents – taking care of their children’s financial wellbeing is paramount for any single parent reviewing their life insurance policy. Life Income benefits are the perfect solution to ensure your children are always taken care of.
  • Caring for a parent – for individuals in need of additional security for parents and grandparents alike, a Life Income will ensure they will continue to be provided for.
  • Estate liquidity – gives your family the freedom to keep moving forward whilst your estate is being wound up, rather than tying them down at such a critical point. Life Income benefits are perfect for estate liquidity, offering them access to often much-needed capital whilst the legal process runs its course.

Life Income benefits offer perfect bespoke short and long-term solutions to complement any Lump Sum cover you may already have in place in order to fulfil individual responsibilities and the needs of dependants. There’s no time like the present to prepare for the future of your loved ones if you pass away.

 

1Swiss-Re New Business Volume Survey 2018

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