Should You Choose The Monthly Income Payout For Your Term Insurance Claim?
Term Insurance is the easiest and cheapest way for you to secure your family’s future financial needs. With the help of the death benefit they receive, they can fund their everyday expenses as well as long-term plans and dreams, without compromising on their current lifestyle.
Usually, the claim amount - the total sum assured is sent to your family’s bank account in one shot - if your death happens during the policy term. But, not everyone is capable of dealing with the lot of money that they suddenly receive. This is similar to people winning a huge lottery - but ending up bankrupt because they did not know how to handle the money!
While this might seem far-fetched, it happens more often with term insurance claims, than you might think! Many families have lost their term insurance claim amount in poor investment choices - and are quickly left without financial support for their real needs.
If you think this might happen to your family - here’s the solution for you.
What is a Monthly Income Payout Option?
When you choose the Monthly Income Claim Payout option, the insurer will provide your nominee or family with a fixed sum of money on a monthly basis, for several years instead of a single large payment. The total sum assured is split into salary-like monthly payouts - and your family can meet their regular expenses using this money.
Let’s understand this better with the help of an example. Say you’ve purchased a term insurance plan with INR 1 Crore worth term cover and have opted for the Monthly Income payout option. Now, when you pass away the claim amount will be sent to your family as Rs 50,000/- per month for the next 200 months (approximately 16 years and 8 months), instead of receiving the entire 1 Crore cover amount in a single payout.
This money will be enough to manage their monthly expenses - and there would be no risk of losing it all!
Note: Some term insurance plans also allow you to choose an increasing monthly-income option. With this, the monthly-payout your family gets is increased by 5% - 10% every year. This can be a good option to help them beat inflation, and always have adequate income to sustain their needs.
What are the advantages of the Monthly Income Payout Option?
- Your family is financially supported for a long period of time, with salary-like monthly payments.
- You avoid the risk of mismanagement of the large sum assured in bad investments. So, the claim amount will serve the purpose that you intended for it, in the first place!
Who is this option suitable for?
If your nominee or family is not well-versed in managing large sums of money, then choosing this claim payout option would make sense for you. It will remove the pressure from your family’s shoulders of managing money in bulk. Also, this option might be suitable if you have no major loans or liabilities that need to be paid off in the immediate future.
Who can skip this option?
You can consider skipping this option if your nominee or family has sufficient financial knowledge and are capable of making proper investments to keep the money safe in the long run. Alternatively, you could have a trusted financial advisor who will help your family manage the money well, then you can avoid the monthly payout option.
Lastly, if you have any major loans to be paid off immediately, then choosing this option would not be ideal as your family will be receiving the money in installments, and could be difficult for them to pay off the loans.
Can you choose to only convert a part of your claim into a monthly payout?
Yes. You can choose a combination of a monthly payment + lump sum payout option too.
This can be helpful if you -
- Have some loans and liabilities that need to be paid off in the immediate future (this amount can be taken from the lump sum amount) - and,
- You want to send a monthly payment, for your family’s everyday needs
Here’s an example.
Say- you’ve purchased a term insurance plan with a cover amount of INR 1 crore. You can choose to split this amount into two parts, say, of 50 lakhs each. If your death happens during the term of the policy -
- Your family will be given a one-time payout of 50 lakhs, immediately. This money can be used to pay off loans.
- The other 50 lakhs is converted to a monthly payout of say 50000 each and sent to your family for the next 100 months (approximately 8 years and 4 months).
Hope you are now clear about how the monthly income option can be very helpful for your family - and to ensure that your term insurance money meets the exact needs that you anticipate.
If you have any further queries related to the claim payout options in term insurance or any other feature, you can post it on the Beshak Insurance Forum, and receive answers from curated insurance experts in 6-8 hours.
Confused about which customisation options to pick and which to skip?
Check out Beshak TruMatch - the first-ever term insurance recommendation engine that recommends the right customizations you must pick so that your term plan is perfectly tailored to your family’s needs.
- In a Monthly Income Claim Pay Option, the insurer will provide your nominee or family with a fixed sum of money on a monthly basis, for several years instead of a single large payment.
- The total sum assured gets split into salary- like a monthly payout.
- With the help of this claim pay option, your family will be receiving financial support for the long term.
- You avoid the risk of mismanagement of the large sum assured in bad investments.
- This option will remove the pressure of managing large amounts of money in bulk from your nominee or family’s shoulders.
- You can skip this claim payout option if your nominee or family has sufficient financial knowledge to make a proper investment decision to save money in the long run.
- If you have any major loans to be paid off immediately, then choosing this option would not be ideal.
- There is another option that you can consider, which allows you to split the coverage amount with the Lump-sum + monthly income option.
We are a group of young members of the Beshak community. We come together to brainstorm, write relevant and useful content for people (just like us) who want to figure insurance on their own. If you too want to share inputs/write for us - send us a "hey" to firstname.lastname@example.org