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Monthly Income Payout in Term Insurance - Detailed Guide

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Monthly Income Payout in Term Insurance - Detailed Guide
February 17, 2023

We work hard during our lifetime to provide our family a secure future and make our dreams come true. We opt for term insurance policies to ensure that our family is taken care in case of unforeseen circumstances. So, not only is it important to make sure that the sum assured of the policy that you have taken meets the needs of your beneficiaries but also how the death benefits i.e., sum assured, would be paid to the nominee(s) and the ways in which they can use it. Due to limited financial knowledge, your nominees may not use the lump sum amount wisely. Hence, despite buying a policy that you think will protect your family, there could still be a case where the basic purpose of the insurance is not met.

This is why a monthly income payout option is a good idea when it comes to term insurance. The insurance market has witnessed major transformation as insurance companies coming up with customized insurance products and different payout options. While typically, in a pure term plan the nominee gets the lump sum amount on the demise of the policyholder during the policy tenure.

These days however, insurance companies have started offering monthly payout that can easily cater to the periodic fund requirement for the dependents. How do the monthly payout option stands fit in terms of convenience and requirement? Does it address all the needs of the policyholder? This the reason why insurance companies now offer staggered or monthly payout options. Instead of a lump sum payment, your nominee will receive 10% of the insured amount and the rest would be paid as monthly installments over the next 15-20 years.

When it comes to payout, there are several payout options in an online term insurance plan as well. Part sum assured plus monthly income comes where around 50%-70% of the sum assured is paid to the nominee immediately after the death of the policyholder and the remaining part is paid in the form of monthly installments to support the family’s regular financial requirements.

Alternatively, you can also opt for part sum assured plus monthly income but in equal proportions In this case, the nominee gets both the sum assured and the monthly income in equal proportions. Or, the sum assured and monthly income increase annually by 10%-20%. This useful feature helps your dependents deal with inflation.

The monthly payout option is best for families that are not very savvy with investments and can’t manage the lump sum on the unfortunate demise of the policyholder. Several factors are responsible for this and the loss of a loved one is not the best time to make a decision about investing the corpus that you receive in case of 100% lump sum payout. It needs to be invested wisely to reap higher returns, which at the individual level may become tough.

What’s more, the premium of a policy with monthly payout option is lower than the regular payment option. Lower premiums could also mean that the payout option may provide low returns, which is not justified.

So you should choose the best term insurance plan that ensures high returns with reasonable premiums to be paid. When you opt for this option, money is paid out to the nominee in periodic intervals. When dependents receive a payout at periodic intervals, it helps dependents to meet their financial liabilities. The time factor when the payout is received is a key factor, as it helps to fulfill financial needs of the family when the breadwinner is no more. The amount that would be paid out should be considered with a view that it fulfills monthly monetary needs of dependents.

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ARN: ED/12/19/17049

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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