Whole Life Insurance Derivatives : Family Income Policy & Family Maintenance Policy

Family Income Policy

One of the most popular, and perhaps most useful, of the combination life insurance contracts is the family income insurances policy. Combining whole life insurance with decreasing term coverage, this policy provides temporary protection and permanent coverage. The term portion of the coverage provides monthly income benefits for the family and the permanent (whole life) part of the policy provides a lump sum payment.

Some family income policies split the lump sum payment into two payments. In this case one-half the policy’s face amount would be paid to the beneficiary to assist in paying for the funeral expenses and the costs of the lost illness. This would then be followed by the specified income payments for a period of years. At the end of the payment period, there would be another lump sum payment equal to one-half the face amount of the policy.

So, a family income policy has two time elements. The family income portion of the policy corresponds to the decreasing term time period. The base part of the policy is usually whole life and thus some degree of protection is provided for the whole of life (to age 100).

The family income policy fulfills the need for higher amounts of coverage during the initial child rearing years. When the children become self-supporting the need for protection and coverage is reduced.

Family Maintenance Policies

The family maintenance policy consists of a combination of permanent whole life insurance plus level term insurance. It also consists of a temporary income period plus lifetime protection. The level term part of the policy provides a monthly income (triggered by the death of the insured person) and the whole life portion provides the lifetime protection.

The primary difference between the family income policy and the family maintenance policy is the length of the income period.

The insurance industry has developed a package life insurance contract to protect all members of a family under one policy, usually termed a family policy or family plan. Its purpose is to provide minimal amounts of coverage on each member of the family Usually, most of the premium dollar purchases whole life insurance for the head of the household and term insurance in smaller face amounts is written on the other members of the family.

Generally family plans are sold or purchased with reference to units of Insurance worth a predetermined amount of face value. So, a family plan might state that the husband/father has four units of coverage, the wife/mother two units of coverage and each child one unit of coverage. If a unit was worth $10.000, this would mean $40.000 in whole life and $20.000 and $10.000 each in term life respectively.