Can your Family Earn a Monthly Income via your Term Plan?

Did you know that your term insurance plan not only offers a lump-sum death benefit to your dependents but can also help them meet their regular expenses with monthly pay-outs? Continue reading to find out how to provide a monthly income for your family members, even after your death.

Typically, a term insurance plan ensures that your family receives a lump-sum on the demise of the policyholder to meet their immediate financial needs. But, this may not be the right choice for all. Losing a family member is emotionally draining. Most often, dependents are not in the right frame of mind to handle such a large sum. Having lost a dear one, they are not likely to invest the lump sum amount wisely.

In such cases, despite having an insurance policy – the fundamental purpose of the plan is not met. If your beneficiaries fail to invest the lump-sum death benefit smartly, it means you have been unable to offer them the right financial protection for their future.

An insurance plan that offers monthly payouts is a better choice in this scenario.

What are Monthly Payout Term Plans?

These are specially designed insurance products that offer regular monthly income for a fixed period – say 10 to 20 years or so. Besides the monthly payouts, the beneficiaries also receive an assured lump-sum on the death of the policyholder.

The monthly payouts provide a regular income to your dependents and acts as an income replacement to your salary. It is a huge benefit, especially when you have non-working dependents like a stay-at-home wife or minor children. Your family members can use the regular monthly payouts to meet their necessary expenses. The lump-sum received as death benefit can be used to pay off outstanding debts or used to invest in wealth-generation plans.

The best part – the monthly payouts are tax-free. Yes, your dependents do not have to pay income tax for the payouts they receive from the plan. Additionally, the premium you pay for monthly payout plans is lower than regular term insurance policies. Some regular term policies allow you to choose the monthly payout option by paying extra premiums.

When it comes to the payouts, there are several options to choose from like:

• A small lump-sum payment (around 10% of the sum assured) as a death benefit, the rest as monthly payouts for the next 15 to 20 years.
• A large lump-sum payment (around 50 – 70% of the sum assured) as death benefit and the rest as monthly payouts.
• Increasing monthly payouts – where the monthly instalments increase by a specific percentage (around 10 – 20% annually) to cope with inflation.
• Lump-sum assured and monthly income in equal proportions.

Which works better – Monthly Payouts or Lump-Sum Payout Plans?

It depends on the financial needs of your dependents. If you think that your beneficiaries would be able to invest the lump-sum amount wisely, then you can opt for a regular term plan. On the other hand, if you believe that your dependents would require a monthly income to meet their daily expenses, especially after the loss of your salary, then you can opt for a monthly payout plan.

Some periodic payout plans also offer regular monthly payouts when the policyholder is diagnosed with a critical illness or is disabled due to an accident.

So, make sure to consider the inclusions and exclusions of the term insurance plan, all benefits, and riders available and then choose the right one that best suits your needs.