Types of Term Insurance Payouts

The below section will give you a detailed understanding of the different pay-out options available in the market. 

What is the Payout in Term Insurance? 

Term Insurance plans are pure protection plans which convenient and affordable form of life insurance. These plans offer policyholders an option to pay a regular premium i.e., monthly, quarterly, half-yearly or annual, to get a life coverage amount. In case of the policyholder’s death within the policy term, his/her family receives a predetermined amount which will help them to be financially secure. Individuals looking out to buy term insurance plans can take the help of a term insurance calculator which provides them the estimate of what their premiums ought to be. 

A Payout is a death benefit awarded to the beneficiaries/nominees of a term insurance plan in a case when the policyholder dies due to an unfortunate incident. However, the mode of payout will be decided and chosen at the time of buying the policy. The payout option in term insurance is chosen based on your family’s financial condition, financial responsibilities, and any goals for the future. 

Note: Now that you know that what is Payout in Term Insurance, you should also get to know about what is term insurance to buy a term plan for your loved ones.

Different Payout options in Term Insurance 

The payout option in term insurance is classified into three types: 

1. One-Time payout in Term Insurance 

   One Time Lump sum is a basic payout option in term insurance where the insurer pays the beneficiary/nominee the complete death benefit as a single payment. For example, if you (the policyholder) choose the one-time payout option at the time of purchasing life cover of Rs. 1 Crore, then this complete amount would be paid to the beneficiary/nominee at the time of your death. 

2. One Time Lump Sum Payment + Fixed Monthly Payouts 

   In this case, the nominee receives 100 percent of the sum assured in the form of a lump sum payout along with an additional payout every month for the next 5 years as decided by the policyholder at the time of purchasing the policy. This type of payment is advantageous as the nominees/beneficiaries can use this extra amount to fund their daily expenses. Let’s understand this with the help of an example: 

   If the policyholder buys a Rs. 1 Crore life coverage under this payout option, then the nominee would receive Rs. 1 crore as a one-time payment instantly, and Rs. 40,000 will be paid to the nominee for the next ten years. 

3. One-time Lump Sum Payment + Increasing Monthly Payouts 

   This option offers a one-time payout to the nominee at the time of death of the policyholder which is the complete sum assured value. In addition to that, the nominee will also be paid the payments of monthly payouts that increase with each passing year for a set period (decided by the policyholder while buying the policy). These types of payout options are subjected to terms and conditions.

   For example: let’s take a life cover of Rs. 1 Crore, then the nominee will receive Rs. 1 Crore instantly at the time of the policyholder’s death. Moreover, Rs. 40,000 will be paid every month for the 1st year, then for the 2nd year, the monthly payouts will be increased by a fixed percentage i.e., 10% for 10 years from the time of the insured’s death. So, the monthly income which is paid to the nominee is Rs. 44,000 in the second year and so on.

How To Choose The Best Term Insurance Payout Option?

The primary question that comes to the mind of a customer is how to choose the best payout option. Preferably, the type of term you choose entirely depends upon the financial requirements, age, health conditions, habits and goals. Individuals at different stages of life require different term plans. Let’s understand which payout will suit your requirements with the help of the following table:  

Note: It is suggested to calculate the term plan premium on the term insurance calculator online tool by Policybazaar before buying.

Wrapping It Up! 

Investing in a term insurance plan helps your loved one to be financially protected. But only buying a term plan is not enough. One should always choose the best payout option wisely at the time of purchasing the policy. Every option has its pros and cons but the section entirely depends on your requirements.

Note: Check all the best term insurance plan in India.

Note: You should also check the benefits of term life insurance if you are planning to purchase the term insurance plan.