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As the standards of living in society have increased, so have the expenses incurred in maintaining the lifestyle. If you are the sole earner of your family, it becomes your responsibility to secure and protect your dear ones. You work hard daily and provide them financial security. But what if someday you are not there with your family? Do you have any plans for this situation? So having a term plan is a necessity these days. Buying a term plan is considered as a first step to provide your family financial protection and stability. But the next step is to choose the right payout option in the term insurance plan.
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The below section will give you a detailed understanding of the different pay-out options available in the market.
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.
The payout option in term insurance is classified into three types:
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.
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.
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.
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:
| Stage of Life | Best Payout Option | Justification |
| Young Age | One-Time Payout | At this phase of life, your responsibilities include the repayment of education loans or helping your parents to pay the loan that they have taken for your higher studies or extra expenses. One-time pay-out will be the right variant for a young and unmarried individual, as the received money can be used to pay off all your loans and debts and you can enjoy your financial stability at an early age. |
| Mid Age | Fixed Monthly Payout | When you are married and have children, your income would become important to run the household and pay for your kids’ education. This payout option can be a compensation for your regular income, when you are not alive, and reduces the financial stress on your dependents. |
| Retiring Age | Increasing Monthly Payout | When you retire from work, not only are you an elderly member of your family, you also have increased responsibilities, such as children’s higher education, marriage, pre-existing loans etc. Therefore, an increasing monthly payout can help pay for these commitments along with maintaining their standard of living without adding to the financial stress on your family. |
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.
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+All savings provided by insurers as per IRDAI approved insurance plan. Standard T&C apply.
