The primary purpose of investing in a term life insurance policy is to ensure the financial future of your loved ones once you are no longer around. The death benefits that your family will receive in case of any untoward incident with you will help the family will manage the day-to-day expenses and fulfill their financial goals. Therefore, you need to opt for a high sum assured.
A term plan provides a large sum assured at an affordable premium You can seek the help of a term insurance plan calculator to determine the premium for the sum assured that you have in mind.
While buying a term plan, you can select how the insurer will disburse the death benefits to your family members. Here, you have three alternatives. You can either opt for a regular fixed monthly payout, a one-time lump sum, or a combination of both. The monthly payout option can be an ideal choice if you feel that your family is not financially savvy. Let us learn how can a fixed monthly payout can be beneficial for your family.
One-time lump sum payout vs. fixed monthly payouts
Opting for a monthly payout can be a wise decision if you think that your dear ones will be unable to manage a huge death benefit amount efficiently. When your family members will receive a substantial amount, they may tend to spend it on unwanted items that can derail the financial strategy that you had planned for them. Spending recklessly can put your family’s financial future in danger. Therefore, opting for a monthly fixed payout can prove to be a smart choice. Here, the payout gets evenly disbursed to your family in 10-15 years. While applying for the term plan, you can decide the monthly amount that your family should receive over the years.
Why should you invest in term plans with monthly payouts?
The death benefit value that your dependents will receive during your absence will be lower if you opt for a monthly payout instead of a lump sum payment. However., you will have peace of mind that your family will get a fixed amount every month that can help them to take care of the day-to-day expenses efficiently. Moreover, this payout option comes at a low premium. For instance, you can find numerous term life insurance policies, which have an approximate premium of INR 500 per month and offer a monthly income of INR 50,000 to the deceased policyholder’s family members. So, you can pick an appropriate policy according to your family’s needs.
How to ascertain the apt monthly payout amount
It becomes vital to calculate the monthly payout properly, as you cannot go wrong here. Therefore, it is advisable to make a list of all costs, such as electricity bills, gas bills, grocery expenses, medical expenses, EMIs for any loans, education expenses, and others. The aggregate of these costs will give you a fair idea of the monthly payout that your family will require to maintain their lifestyle. Additionally, you need to consider the cost of inflation while finalizing this amount.
Types of monthly payout plans
The three forms of monthly payout options include:
- Increasing monthly payout plan
This option will ensure that your family will receive a monthly payout that will increase at a rate of 10 to 20 percent every year.
- Lump sum, which is equal to monthly payouts
Under this plan, the policy’s nominee will receive a lump sum, which is equivalent to the fixed monthly payouts.
- Higher one-time lump sum payment with a lower monthly payout
Here, the nominee will receive a maximum chunk of the sum assured, say around 50 to 70 percent as a one-time lump sum, and the insurer will pay the remaining sum in monthly intervals.
Now when you know what is term insurance with monthly payouts, it is time that you buy a suitable policy according to your family’s requirements.