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Features
Ref. No. KLI/22-23/E-BB/492
When you buy a term insurance plan, it comes with the option of receiving the total sum as a lump sum or in the form of staggered pay-out. Read on to know which one to choose.
Term insurance is gaining popularity as one of the most valuable forms of insurance to protect your loved ones’ financial future. The main reason for its popularity is its affordability. Term insurance provides high coverage at lower premiums compared to other life insurance policies.
In the event of the policyholder’s demise during the policy tenure, the insurance company pays the policy benefits, i.e., the sum assured to the nominee. Generally, the insurers pay the death benefit in a lump sum. However, if you think that your nominee is not too financially savvy and would better suit them to receive the death benefit in a staggered manner, you can choose the deferred pay-out option.
Let us look at both these pay-out options work so that you can make the right choice.
When you purchase term insurance, you must pay the premium periodically throughout the policy tenure. If you unexpectedly pass away during the policy period, the nominee will receive the death benefit amount as a lump sum.
They can then use the amount to take care of their daily expenses, manage future expenses, etc. This is how a traditional term plan that has a lump sum pay-out option works.
Sometimes, the nominee may find the lump sum death benefit pay-out hard to manage since they will receive it in one go as a large amount. To make matters easier for them and help them manage the death benefit, insurers have come up with the option of staggered payment, wherein the death benefit is paid at periodic intervals. This regular payment best mimics a monthly income, and the nominee can manage the money more efficiently.
There are different types of staggered pay-out options available.
In this case, the pay-out is made entirely in equal monthly instalments for a fixed duration. Such a plan is most suitable for people used to a monthly income.
As the name suggests, this type of pay-out involves payment of the total sum assured in increasing monthly instalments. The pay-out amount may increase by 10% to 20% every month until the entire assured sum is paid.
Under this pay-out option, a percentage of the assured sum is paid as a lump sum, while the rest is paid in equal monthly instalments.
If you choose this pay-out option, the insurer will pay a part of the sum assured in a lump sum and the remaining amount in increasing monthly instalments.
Whether you go for a lump sum pay-out, or a staggered pay-out depends entirely on your requirements. If you believe that the nominee can use the death benefit responsibly, you may choose a lump sum pay-out.
Also, if the death benefit is going to be used to pay off large debts, then a lump sum pay-out is better. However, if you think the death benefit should be used to replace your monthly income, then a staggered option may work better for you.
In the end, you have to analyse your family’s expenses in the future and decide on the best pay-out plan.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
