When you buy a term insurance policy, it is primarily to provide financial security to your family in your absence. One of the important factors that you must consider while buying a term insurance plan is the premium charged by the insurance company. To see which term plans suit your needs, you should compare term insurance plans of different insurance companies. Along with that it is equally important to understand how to claim the term insurance plan and how one can choose to take the payouts.
Payout option is the way a nominee receives the cover amount on demise of the policyholder. A lot of people purchase term insurance plans to secure their family financially but nominees are not aware of the different ways of receiving the cover amount. Secure your family financially by indulging in the best payout option. Here you will get the overview regarding the payout options that you can avail in a term insurance plan.
Different types of payout options
One can select their payout option from the below mentioned combinations.
Lump sum payout option
In a lump sum payout the nominee receives the entire cover amount in a single payout immediately after the death of the policyholder. This is the most commonly chosen option in a term life insurance.
For example,
Mr. Rao, who is 26 years old, purchases a vanilla term insurance plan with a cover amount of Rs.1 crore. He pays a premium of Rs.12,411/- for the policy term of 34 years. There was an unfortunate car incident that led to the demise of Mr. Rao. In this scenario, since Mr. Rao had specified a lump sum payout option, the nominee of Mr. Rao will receive a lump sum cover amount of Rs. 1 crore.
Monthly income payout
In this payout option, the nominee receives a certain percent of the cover amount on a monthly basis until the cover amount is exhausted.
For example,
In our scenario, suppose Mr. Rao had opted for a monthly income payout option at the time of purchasing the policy. In an incident due to a fatal accident, Mr. Rao couldn’t survive the policy term. Here the nominee of Mr. Rao receives Rs.1 Lakh as a monthly income payout (1% of the cover amount i.e. Rs. 1 Cr. )
Lump Sum + Monthly Income payout option
If the nominee chooses to opt for this option while receiving the payout of the cover amount, then a part of total cover amount is received immediately to the nominee of the policyholder and the remaining portion is received in the form of a monthly installment to support the family of the policyholder.
For example,
Continuing with our example of Mr.Rao, say due to unfortunate incident there is demise of Mr. Rao. The nominee opts to receive the cover amount partially as lump sum and the remaining amount in a way of monthly income to meet the miscellaneous expenses. In such a scenario, the nominee of Mr. Rao will receive Rs. 10 lakhs as lump sum amount (10% of total cover amount i.e. Rs.1 Cr.) immediately after the death. The remaining part of Rs.90 Lakhs will be received over the years at 0.5% of the remaining amount as a monthly income until the entire amount is exhausted.
Conclusion
Having a term insurance policy certainly provides financial security to your family. Choose the payout options appropriately when you purchase term insurance plans that suit your needs!
You can even compare and buy various investment insurance plans of different insurance companies under a single roof at MyInsuranceClub.
