April 24, 2024

5 points about term insurance policies with a monthly payout

While choosing an insurance policy which is the most important concern that bothers you? Financial security of your dependents, isn’t it? While you plan for the well-being of your loved ones, it is also necessary to think about how they will manage their day-to-day expenses in your absence. If your spouse is not used to handling financial technicalities, then it is best advised to invest in a term plan with monthly payouts. This can prove to be financial aid in case of your untimely demise. 

Here are five essential points you must know regarding term plans with monthly payouts. 

  1. Monthly payouts over lumpsum payouts – In case your family is not used to handling financial technicalities then the term plan offering a lump sum payout can be a difficult option. This is because the money received as a lump sum amount can be spent in less time if not saved or invested correctly. Opting for monthly payout option disburses amount every 1- to 15 years, and thus the money sustains for a longer period. The amount to be paid can be decided by you while buying the term insurance plan. This amount will suffice your family’s regular requirements. Some insurance providers offer a combination of both where they pay up to 50%-70% of the sum assured and then pay the rest as monthly payouts.
  2. Single or multiple amounts – The monthly amount comes in two options, one as a flat amount and other with percentage increment every year to adjust for inflation. You can use monthly payout as a secondary income option, which comes every month for a certain number of years. 
  3. Monthly benefit – As a policyholder, you are offered different options to receive the total sum assured. Some term insurance policies come with an option of monthly payout and some with a lumpsum payment. Opt for a term plan insurance plan with monthly payout option as it offers reassurance, and the premiums are lower. You can customize this plan based on your requirements. 
  4. Options available under monthly payout plans – When you opt for monthly payout plans, you get three options generally.         
  5. Lumpsum with increasing monthly income: In this plan, your dependents receive a monthly payout that increases annually at a rate of 10% to 20%.
  6. Equal lumpsum & monthly income: This plan gives your dependents a lump sum amount which is proportional to the monthly payouts.
  7. Higher lumpsum & lower monthly income: In this plan, your nominee will receive most of the sum assured that is around 50% to 70% and the remaining amount is released through monthly payouts. 
  8. Calculating monthly payout amount – To decide the monthly payment amount that will be enough your family, the first step is to make a list of regular expenses. Consider monthly rentals, car loan instalments, home loan EMIs, utility bills, educational expenses, groceries, trips, etc. while calculating making a list. Add all these expenses, and you derive the monthly payout amount that you must opt for. Remember to take into account the inflation factor while calculating this amount. 

A person buys a term insurance plan to make sure his/her family leads a financially secured life even in the bread earner’s absence. But while planning this, it is also important to consider that not all family members are economically savvy; hence the monthly payout term plan becomes the easiest option at such times.