Installment option on term plan
Is the sum of all instalments paid by the insurer higher than the amount that would be paid on the lump sum. (i.e do instalment have some interest attached to it due to the passage of time )
Each premium has three components i.e EMI
E for expenses that is to manage your account so you do not get it back .
M for mortality expenses or risk premium i.e cost to cover risk of death . This goes in creating a pool which pays death cover .
I for investment , this is invested and returned to you alongwith interest .
So if you pay rs 100 as premium ,approx rs 80 is invested and rs 20 is an expense .
So if you put rs 100 for 20 years then you shall get guaranteed rs 1600 plus interest .
Hope this clarifies
A bit of confusion still stays, will be glad if you could help.
If in the payout option I choose the Income option instead of Lump-sum, will the Income Option contain some interest as the payment made to my kin are deferred.
Or Insurance company will divide the lumpsum amount over the period and pay
To best of my knowledge NO. You get the claim amount only spread over instalments choosen in a traditional plan.
If you chose income option then insurance company would pay interest .
Total amount paid will be higher than the amonut due on happening of event .
The term insurance payouts are broadly of 3 types -
1) All Sum Assured as lump sum on death
2) Sum Assured as lump sum + monthly income for 10 to 15 years
3) Part Sum Assured as lump sum + remaining Sum Assured in equal instalments over 10 to 15 years
I believe the Income Option falls under the 3rd type. If it is, then the sum total of all instalments & part Sum Assured will be roughly equal to the policy Sum Assured. Cross verify this with your policy document & let us know if you have any questions.
Your choice of the payout type should depend on your family's liabilities, monthly requirements, and their ability to manage lump sum amounts productively. If you feel the family is not savvy enough to make the right financial decisions & use the lump sum well, it is best to take option 2 or 3.
Premium wise, 2 is the most expensive followed by 1 followed by 3.
If you want to compare the value of money received via the 3 payout options, you should do a NPV comparison (net present value).
Wish you well. Cheers!