What Is a Life Income Plan?

Alex Newth
Alex Newth
Man climbing a rope
Man climbing a rope

A life income plan is a type of investment vehicle that pays investors, or donors, for life after they have invested enough in an establishment. The most common establishment that offers a life income plan is a charity, and the money normally goes to charitable causes after the investor dies. Based on how much the establishment receives, donors will be paid back for life, which can guarantee income even if a wealthy investor becomes poor. Some establishments that offer this type of income plan have a minimum investment, while others allow donors to give what they can. After the money is handed over, it legally belongs to the establishment.

Many different establishments sponsor life income plan investments, but the sponsoring establishment predominantly is a charity. While the charity is primarily helping investors, it still will perform charitable donations. For example, after the donor dies, the money that he would have received is forfeited and normally is used for charitable purposes. The investments typically are tax deductible, so most charities will help investors get the biggest deduction they can while still making a substantial investment.

After investing enough money, depending on the establishment, the investor will make a return. This may be a percentage of what he has donated, or it may be a flat payment after donating a certain amount of money. A life income plan pays the donor for life, regardless of whether the investor can invest more money. Not only that, but this generally makes the investor more money, because life income plans often bypass some or many tax laws, depending on the area.

Most life income plan establishments do not have a minimum donation, but some do. This type of plan typically is meant for wealthier people, so the minimum often is quite high. If the establishment does not have a minimum, then investors can pay however much they want at any time.

When money is donated to a life income plan establishment, the establishment gains legal control over that money. This can present a problem if the establishment is fraudulent, because it then may not pay the life income, though this is uncommon. With the money owned by the establishment, all responsibility for managing the money is taken off investors, and the establishment now has to control where the money goes and how it is stored.

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