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An income replacement term insurance policy is an advanced version of a term insurance plan. It is a comprehensive plan which provides your family with a death benefit in case of your death. In an income replacement term plan, the insurance company pays the nominees or the family members of the life assured a percentage of the sum assured each month for a particular number of years. This benefit amount acts as an income replacement in the absence of the main income earner.
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Income replacement term insurance policy in India refers to term insurance plans that offer the death benefit on the death of the policyholder in regular installments. These regular payments act as an income replacement for the policyholder's family. This way, the grieving family can take care of their financial obligations like paying rent, child’s fees, and repayment of remaining loans.
However, it is important to note that the income replacement term insurance policy is a pure risk cover plan. There is no maturity benefit offered in regular-term plans. The payment of the sum assured is made only in the event of the death of the life assured. If he/she passes away during the policy term, the insurance company pays regular income to the nominees.
Note: Now that you know that what is Income Replacement Term Plans in India, you should also get to know about what is term insurance to buy a term plan for your loved ones.
Term Plans
Here is a list of individuals who should opt for the income replacement plan in India:
If you have dependents who do not earn a monthly wage or salary, you should opt for the income replacement term insurance policy plan.
Especially if you have dependents like children, parents, spouse, siblings, etc., you should take up this plan.
Also, if you are obligated to provide or wish to provide financial security to your dependents at a low cost, this plan is the best option for you.
You can be sure that your family will be able to carry out the necessary daily activities thanks to the steady source of income each month.
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Here is a list of benefits of buying the income replacement term plan in India:
Guaranteed Death Benefit: One of the main benefits is that it guarantees a considerable fixed amount until the sum assured is paid fully.
Stress-Free Life: Moreover, as the policy offers a fixed monthly income to the nominee, it helps them to live stress-free for months in respect of financial requirements.
Take Care of Inflation: The payout from this plan can help the family prepare against inflation in the long run. Income replacement term insurance plans give an option to the family of an increasing income. Increasing income is a good option for the family members, specifically when they depend on this income for long term.
Note: It is suggested to calculate the term plan premium on the term insurance premium calculator online tool by Policybazaar before buying.
Let us take a look at the additional benefits of an income replacement term insurance policy:
Low Premiums: These term insurance plans are pocket-friendly, with premiums as low as Rs. 525 per month. The earlier you buy these plans, the higher coverage you will get.
Right Sum Assured: You can select the right life cover as per your needs with income replacement term plan. This is because, since this amount will be paid to your family in your absence, it should be enough to cover their financial needs in your absence.
Tax Benefits: With term insurance tax benefits, you can save on your yearly taxes under sections 80C and 10(10D) of the Income Tax Act, 1961.
Paperless Procedure: The entire process of buying term plans online includes almost zero paperwork. This makes the process easy and convenient and allows you to access the policy on the go.
Quick Claim Settlement: With income replacement term plans, the insurers offer a quick and easy claim settlement, with some insurers settling claims within just 4 hours. You should assess the CSR of the insurance company and buy term plan from an insurer with a CSR over 95%, as it ensures reliability.
Income Replacement Term Insurance and Regular Term Insurance are different in the following ways:
Under the income replacement term insurance policy, the nominees of the life assured receive the sum assured in installments throughout the years till the sum assured is fully paid off on the basis of monthly payments. In this case, all the worries of whether the dependents would be able to calculate their monthly expenses are also relieved as this policy pays out a percentage of the sum assured each month instead of a large sum of money.
This type of term insurance plan is beneficial when your nominee(s) is a child or does not have a job to maintain their livelihood. The monthly payments will help them go about their lives with the basic amount to spend for their needs. If you fear that your children may not be able to handle large sum of money at such a tender age, the income replacement term insurance policy is the best term insurance plan to opt for in such cases. Also, if you have elderly, retired parents who are dependent on you, purchasing this plan will ensure that they receive a monthly payment for as long as possible to sustain themselves after your demise.
In this plan, the nominee of the insured receives the sum assured of the insurance policy as a lump sum amount, meaning that they receive the whole amount at once which also immediately terminates the policy as the whole amount of the sum assured is paid at once. However, for such plans, the nominee should be financially adept at handling large sums of money at a go.
Age is considered to be an important parameter that regulates the premium. So, the early you buy, the high coverage you will receive for a lower premium rate. Also, the premium amount for this plan remains the same throughout the term.
The duration for income replacement term plans ranges from 5 to 40 years. However, few insurance companies in India provide long-term cover till the age of 99 or 100 years.
Purchasing an income replacement plan is a smart decision if you are the sole earning member in the family. This plan safeguards your family’s financial future in case of your absence.
These plans offer financial protection to your loved ones through a fixed income monthly.
If not the income replacement term insurance, then what?
There are quite a few variants of the term insurance plan. They are as follows:
The fixed monthly payments variant of term insurance pays the nominee a fixed amount for a specific number of years. The fixed amount is decided and paid on a monthly basis. Suppose, the sum assured is INR 3 crores, then the monthly payouts would be made at INR 1,00,000 every month for 3 years, after which the sum assured will be over and the policy will be terminated.
This variant of term insurance is a combination of fixed monthly payments along with a lump sum payment. A part of the sum assured is paid to the nominees in a lump sum and the remaining amount is divided into parts and paid to them on a monthly basis for a fixed number of months or years until the sum assured is over. Suppose, the sum assured is INR 3 crores, then INR 1 lakh would be paid in a lump sum and the remainder which amounts to INR 2 crores would be paid monthly at INR 1 lakh each month for 2 years after which the sum assured will be over and the policy will be terminated.
Another variant of term insurance is when the monthly payouts are multiplied at a pre-determined rate annually for a certain period of time, at a fixed percentage, or it is calculated on the basis of the rate of inflation.
You have to carefully analyze your family members and see what kind of variant of the term insurance plan will be most suitable for them in case of your unfortunate demise. Income replacement plans are the right investment tool for those who are looking out for low-cost insurance that secures the financial future of your family. If you have loans, the best thing to do is to not choose the income replacement term insurance policy, as the lump sum variant of the term insurance plan will help them pay off the loans fast enough and get rid of the tension soon.
Choose carefully and plan well!
Note: Check out the best term insurance plan in India and choose one that suits your requirements.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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