Types of Term Insurance Payouts

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 provides 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.

Read more
Get ₹1 Cr. Life Cover at just ₹411/month*
No medical checkup required
Save more with upto 10% discount
Covers COVID-19
Tax Benefit
Upto Rs. 46800
Life Cover Till Age
99 Years
8 Lakh+
Happy Customers

*Tax benefit is subject to changes in tax laws. *Standard T&C Apply

** Discount is offered by the insurance company as approved by IRDAI for the product under File & Use guidelines

Get ₹1 Cr. Life Cover at just ₹411/month*
No medical checkup required
Save more with upto 10% discount
Covers COVID-19
View plans
Please wait. We Are Processing..
Get Updates on WhatsApp
By clicking on "View plans" you agree to our Privacy Policy and Terms of use

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 are simple. 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 pre-determined 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. 

Different Payout options in Term Insurance? 

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

  1. What is the 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 purchase a payout option of the one-time lump sum that provides Rs. 1 Crore life coverage, then this complete amount would be paid to the beneficiary/nominee at the time of your death (the policyholder). 

  2. What is the 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. What is the 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. Moreover, 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. In addition to this, Rs. 40,000 is paid every month for the 1st year, then for the 2nd year, the monthly payouts will be increases 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 Select the Best 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 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 an example: 

  1. If you are young and not married 

    In this case, consider a term insurance plan with a one-time lump sum payout. Because at this phase of life, your responsibilities include the repayment of education loan or helping your parents to pay the loan that they have taken for your marriage, higher studies. Having a term insurance plan in this situation is very important as it ensures that all the liabilities will be taken care of even if the policyholder dies in an unfortunate incident. One-time pay-out will be the right variant for a young and unmarried individual. In this option, 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. 

  2. If you are married and have no children

    In this case, consider a term plan with a monthly payout option. When you are married, you start building your life with your spouse, your income would become important to run your household chores. This payout option can be a replacement for your regular income and it also reduces the financial stress on you and your spouse. 

  3. If you are married and have a 5-year daughter 

    In this case, Consider a term plan along with a lump sum and an increasing monthly payout option. As parents, your children are your only priority and you want them to achieve their dreams without any financial hindrance. This payout option will help you to close all your financial responsibilities and increasing monthly payout helps you in meeting your child’s everyday expenses such as school fees, tuition fees, household expenses, etc.   

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.

Written By: PolicyBazaar

Term insurance articles

Recent Articles
Popular Articles
What is Group Term Life Insurance?

29 Nov 2021

For individuals with financial responsibilities, term insurance...
Read more
Who Can Be Nominees in a Term plan?

29 Nov 2021

The main reason for buying a term plan is to make sure your...
Read more
Which Term Plan Does Not Require a Medical Exam?

29 Nov 2021

Term insurance is understood as the easiest form of life...
Read more
What Is the Procedure to Choose a Nominee In Term Insurance Policy?

29 Nov 2021

In the event of sudden death of the policyholder, a life...
Read more
What is a Term to Age Policy?

26 Nov 2021

Popular for its low-risk investment, term insurance is steadily...
Read more
LIC Term Insurance 1 Crore
If you have a LIC term insurance 1 Crore handy, you can cherish all your happy moments as you have made a fine...
Read more
Types of Deaths Covered & Not Covered by Term Life Insurance
Types of Deaths Covered and Not Covered by Term Insurance When it comes to securing the future of your loved ones or...
Read more
10 Questions You Should Ask Before Buying Term Insurance
10 Questions You Should Ask Before Buying Term Insurance There are various doubts faced by customers when it comes...
Read more
Term Insurance for NRI in India
Term insurance offers financial protection to the family of the insured in case of demise. Every bread-earner...
Read more
2 Crore Term Insurance Plan
The pandemic has surely generated a global panic and emphasised the importance of financial planning that would...
Read more
Download the Policybazaar app
to manage all your insurance needs.