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Why You Need an Income Continuation Plan

Apr 16, 2024 2 min read

How would your family survive if you or your partner became disabled or died? An income continuation plan answers that question. It outlines how your family鈥檚 income would support your lifestyle if something happened to the people who contribute to the household income.

Here are a few things to know about income continuation plans and what they should include.

Why Is Having an Income Continuation Plan Important?

Most American families would face major financial problems if someone who contributes to the household income were no longer able to do so. Consider the many bills your family might face 鈥 rent or mortgage payments, childcare, food, utility bills, car payments, gas, debt payments, household supplies, insurance and more. If someone鈥檚 income is no longer in the picture, would your family still be able to cover everything?

Your family may also be working toward long-term savings goals. Do you have college funds for your children? Are you saving for retirement? Would your family be able to meet their educational and retirement goals without key sources of income? An income continuation plan can help ensure that your family can still meet these goals even if wage earners are no longer in the picture.

How Life Insurance Can Help While You鈥檙e Living

Whole life insurance policies can be a key part of an income continuation plan, and they don鈥檛 only provide protection for surviving family members. They also accumulate value, so you may be able to access money while you鈥檙e still alive.

Living benefit riders may allow you to access benefits early if you or your partner has a terminal or chronic health issue that lowers your family鈥檚 income. You鈥檒l want to evaluate your situation to decide if using this benefit is the right choice for your family. It can give your family more money while you鈥檙e living, but it decreases the payout they receive later. And your family may be responsible for paying taxes and fees on the benefits.

How Life Insurance Can Help After a Death

Using life insurance to provide income continuation insurance in case someone dies is a good idea for most people who have children or other dependents. Many employers provide some life insurance to employees as part of their benefits. But you and your family may need more coverage than whatever your employer might provide.

Most families find they want to replace five to ten years of their annual income through a life insurance policy. That can give your family the money they need to cover living expenses and long-term financial goals. Buying life insurance on your own also ensures that the policy follows you if you change jobs.

However, this money is typically paid out in one lump sum, which may not help with ongoing family expenses 鈥 things like car payments, food and saving for college.

Some life insurance options, such as Farm Bureau鈥檚 Income Guard Term Life, structure the payments differently. Instead of deciding on a lump sum your family would receive, you can look at your household budget to determine how much income your family would need to replace each month. They would then receive a monthly amount 鈥 just like a paycheck 鈥 to address their financial needs.

How Disability Insurance Can Help

As part of your income continuation plan, you鈥檒l want coverage in case you or your partner can鈥檛 work because you鈥檙e hurt or sick. Your employer may offer disability insurance coverage, but many plans only go into effect after you鈥檝e been disabled for 90 days. They may also pay just 60% of your income, and that amount is subject to taxes.

You may want to buy short-term disability coverage that can cover your income for three to six months, especially if you don鈥檛 have enough money in an emergency fund to cover your living expenses for this time.

And long-term disability coverage may be able to add to any coverage your employer provides. As the name indicates, long-term disability insurance covers you for a long time. You can usually pick a timeframe of five years or more, even up to your retirement age.

Make Sure Your Family Has the Financial Protection They Need

Talk with a Farm Bureau Financial Services agent about your family鈥檚 needs and the right income continuation plan for your situation. Together you can find the coverage that fits your needs 鈥 such as riders to help cover chronic care or a policy that provides monthly payments to your beneficiaries.  

Neither the Company nor its agents give tax, accounting or legal advice. Consult your professional adviser in these areas.

Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.