The objective of investing in a term insurance plan is to provide financial stability to your family in your absence. In India, life insurance companies provide various plans with a range of benefits to policyholders. One such feature is the regular income payout. With this feature, your family can continue to have adequate funds for their sustenance even when you are not around. This article explains the significance of a regular income payout, the different payout options, and how to choose the right payout option depending on your family’s requirements.
Understanding the Regular Income Pay-Out Feature
What is life insurance and what is the objective of life insurance? These are the two aspects that have to be kept in mind while buying a term insurance plan and choosing the payout option. While a normal contract provides for a lump sum payout to the nominee or beneficiary on the death of the policyholder, other options can provide better financial support to your family.
Regular income payout is one such feature that is beneficial, especially if the policyholder is the sole breadwinner of the family. On the death of the policyholder, the insurer will pay the claim amount in monthly installments instead of a lump sum.
If the nominee or the beneficiary is not prudent in financial management, the lump sum amount can be overwhelming, and they may end up making the wrong investment decisions. A regular income pay-out will be the best option in such situations, and the maximum benefit can be derived from the investment made in a term insurance plan.
Types of Regular Income Payouts in Life Insurance
If you have a vision of your family’s requirements for now and the future, you can choose among the various types of regular income payouts designed to suit individual needs.
Fixed Monthly Income
Under this option, a predetermined amount is paid out to the beneficiary every month. The policyholder can choose the duration and amount of the monthly payment at the time of purchasing the policy. This will ensure a steady income for the family to maintain their lifestyle even in your absence. This is ideal when the policyholder is the sole earning member of the family.
Increasing Monthly Income
This option provides for a step-up payout. The monthly income payout will increase gradually over the years. This arrangement will take care of inflation and increasing expenses, ensuring that the family’s standard of living does not waver. Your family will be financially secure even with the rise in the cost of living.
Lump Sum + Regular Income
This is a combination of a lump-sum payment and regular income. The lump sum amount is paid immediately after the death of the policyholder, and the regular income stream continues to provide financial stability. This dual benefit will take care of both immediate and long-term financial needs.
Choosing the Right Regular Income Payout
The financial requirements differ with the stage of life you are in. Choosing the right regular income payout depends on the life stage at which you are purchasing the policy.
If you are buying a life insurance policy when you are young and have incurred various liabilities, like a personal loan, a home loan, or a car loan, to fulfill your life goals, the burden of the liability falls on your parents in the event of an unfortunate event. At this stage, choosing a lump-sum payout will be right, as it will help your parents meet the debt.
During midlife, when your children and spouse rely on your income, consider a staggered income payout. It combines a lump-sum payment for future needs and monthly payouts for 10 to 15 years for ongoing support, ensuring financial stability.
The priority varies when you purchase a term insurance plan when you are slightly older. Your children are likely to be financially independent at this stage. A fixed monthly income will be of support to your spouse for sustenance.
Things to Consider When Opting for Regular Income Payout
You need to keep in mind the following points while opting for a regular income payout:
- The duration you choose should align with your family’s financial needs and goals.
- Calculate the monthly income payout to ensure it adequately covers your family’s expenses and future financial goals.
- Assess your financial capacity to pay premiums regularly. Ensure that the plan chosen does not make a hole in your pocket.
- Explore optional riders or add-on benefits that can enhance the policy’s coverage, such as critical illness riders or accidental death riders.
- Read and understand the terms and conditions thoroughly, including any exclusions or waiting periods.
Regular income payouts in life insurance provide financial security and stability for your family. It ensures a steady income to cover daily expenses and long-term goals. When choosing such a policy, assess your needs, duration, payout, affordability, and extra benefits for an informed decision about your family’s support and security. It is more than an investment; it is a promise of a secure future.