Make Your Online Term Plan Your Familys Monthly Payout

• 26th Aug 2021
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While buying a life insurance policy, one of the most critical things you must keep in mind is your family’s financial security. And, although you must focus on securing their financial future, you also think about how they or the policy beneficiary will manage their expenses in your absence. ​

If the family member who receives the policy benefit is not financially savvy, it is best advised to opt for a term plan with a monthly payout. The monthly payout will not ensure their financial security in your absence, but it will also act as a monthly paycheque to them. Depending on the coverage amount you choose, the payout can last a long time and give your family a regular income.

Monthly Payout in Term Insurance

Typically, most term insurance buyers opt for a lump sum pay-where the insurer pays the entire sum assured in a single payment to the beneficiary post the policyholder’s demise. But, when you buy a term plan for family, you have the flexibility to choose the payout mode. If you think your family is not financially savvy, you can select the monthly payout mode.

In this arrangement, the insurer pays the death benefit in smaller instalments, and a specific percentage of the amount is paid to the beneficiary each month. This can help your family get sufficient income every month to take care of their everyday needs.

A term plan with a monthly payout is the best option for families that have low financial literacy. They may struggle with managing the lump sum amount and may not know how to use it to grow it further or invest it. It may also be challenging for them to manage the amount at an individual level in your absence. Although there are several investment schemes that provide regular returns, a family term insurance plan with a monthly payout is an ideal choice for families with a single income source.

One of the most challenging aspects of choosing the monthly payout in a term plan is to decide the exact amount you want your family to receive. Remember, the payout will act as an income replacement and as a monthly paycheque.

So, before you decide the amount, it is advisable to make a list of your usual family expenses. This could include rent, bills, EMIs, groceries, educational expenses, etc. Add the expenses, and you can arrive at the monthly payout amount. It would be a wise idea to factor in inflation while calculating the total costs.

Customisation of monthly payout

The monthly payout term plans are relatively new in the insurance industry. And, generally, the insurers offer three options under these plans; you can choose any option as you want.

• Lump sum amount with increasing monthly income – When you opt for this play, the dependents will get a monthly payout that increases annually by 10% - 20%
• Equal lump sum and monthly payment – Under this plan, the dependents receive a lump sum amount equal to the monthly payout.
• Higher lump sum and smaller monthly income – If you choose this option, the beneficiary will receive a significant portion of the sum assured in the lump sum and the rest through monthly payout.

Final Word

Thus, by purchasing a term plan with a monthly payout option, you can be sure that your family gets a steady income even in your absence. This is the most convenient option for the dependents to meet their expenses without feeling the burden of a lump sum payout and not knowing how to manage the amount.

- A Consumer Education Initiative series by Kotak Life