Whether you may be a salaried individual or self-employed, you may be looking to increase your wealth so that your loved ones can have a financially secure future. While you have the option of investments, the duration taken to increase the wealth with these options is often long. If something were to happen to you during this period, your family may have to face financial vulnerabilities. Putting your money in a good term plan will help your loved ones avoid facing a financial lurch.
This insurance policy gives a pay-out to your family after a claim is filed. There are different types of pay-outs in term insurance policies. Read on to know more about them and to know which one you should go for.
Table of Contents
What is term insurance?
Term insurance is a type of life insurance policy. A term plan comes with a limited duration, hence the name term plan. The durations offered are usually between 5-20 years, with some of them going up to 30 years as well. If the policyholder were to pass away during the policy term, the insurer will compensate the family with a death benefit. This money can be used by your family to manage vital expenses and other liabilities as well.
What are the different types of pay-outs?
Listed below are the types of term insurance pay-out:
One-time lump sum pay-out
As the name suggests, this is a one-time lump sum pay-out. Once the claim has been filed and processed, you can request for a lump sum pay-out of the compensation amount. For example, if the sum assured amount of the policy is Rs.40 Lakhs, you can request the insurer to pay the compensation amount in full. This option is generally offered by all insurers and is often the one that is availed the most.
One-time lump sum payment + fixed monthly pay-outs
In this type of term insurance pay-out, the policyholder can request the insurer for a part of the sum assured as a lump sum, with the other half being disbursed in the form of monthly payments. For example, if your policy’s sum assured amount is of Rs.60 Lakhs, you can demand for Rs.30 Lakhs as a one-time lump sum pay-out. The other half will be disbursed in the form of a monthly income.
One-time lump sum payment + increasing fixed monthly pay-outs
Unlike the previous type of pay-out where the sum assured is divided into two parts, it is not the case in this type. You can avail a lump sum pay-out of the sum assured amount. Additionally, you get monthly fixed payments, the amount pre-decided by the insurer during the purchase of the policy. These pay-outs keep increasing every month. You can discuss with your insurer the option of such a pay-out at the time of the policy purchase.
Which pay-out should you go for?
- If you are young and have started earning recently, term insurance with a one-time lump sum pay-out option is most suitable for you. As you would have dependents who rely on your income, a one-time pay-out will help your dependents take care of the routine cost of living. It will also help them cover the expenses of any emergencies. If you have any outstanding loans or debts, those will be covered by the pay out as well.
- If you are married, you should opt for the one-time lump sum pay out with fixed income for a specific duration. This can be used as an additional source of income and safeguard your savings for other purposes.
- If you are married and have children who are in school or college, going for the one-time lump sum payment with increasing pay-outs is the suitable option. While your income will cover the cost of living, the additional income from the pay-out can be used to cover the fees and other expenses related to the education of your child. It may be especially helpful if your child is planning to go abroad for higher education.
- If you are nearing retirement or have retired, the one-time lump sum plus fixed monthly pay out is the option for you. This will help secure the financial future of your partner in your absence and minimises the risk of financial instability.
Conclusion
These are the types of pay outs that you get in term insurance. If you wish to know how much pay-out your loved ones would receive from your term insurance, you can use the term insurance calculator to get a sum based on your requirements.
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