3 ways to make your term insurance nominee's life simple
The main purpose behind buying a term insurance policy is to make sure your family continues living a comfortable and secure life after your death. You wish for them to have sufficient bank balance so that in the future they will not have to make any compromises with their dreams and lifestyle.
While you buy the term insurance with the objective of protecting their financial future, there are small things - that if not carefully implemented might make things difficult for your family during and after the claim. Keep in mind that you will not be around at the time of the claim - to help them out.
So what can you do now, to make sure your family does not have to experience issues later on?
Do you know who first receives the claim amount - between your family/ nominee and the bank that gave you your loans? While it might come as a surprise, it is the bank or your creditor. But why them?
As per the law, in case you pass away and haven’t cleared off your existing loans, then the term insurance money is first given to your creditor or bank to settle the loans, and then the rest of the amount is provided to your nominee or family. This means that for a long time after your passing - your family will not receive any of the amount - and will need to deal with the situation without enough financial support.
However, there is a way around this, particularly if you are a married man, by opting for the Married Women’s Property Act (MWP).
The main purpose of choosing the MWP Act is to secure your wife and children’s future finances. With the MWP Act, your wife will directly receive the claim amount without the involvement before anyone else. If there is an existing loan, once your wife receives the claim amount she can decide when and how she prefers to clear off the loans.
Things to remember about the MWP Act
- You can take the term plan under the MWP act by singing a simple addendum at the time of policy purchase
- You can only do this at the time of policy purchase, and never later
- You (or even your wife) cannot change the terms in the MWP / or remove the addendum any time in the future - even in case of a divorce
The claim payout option allows you to decide how your nominee or family receives the claim settlement amount. These are some common claim payout options you’ll find.
👉 Lump Sum Payout Option
Under the lump-sum payout option, your nominee or family will receive the entire claim settlement amount in one single payment. For example- you have purchased a term insurance plan with a term cover of INR 1 Crore. In case you pass away between the policy duration, your nominee or family will receive the entire INR 1 Crore in a single payout.
This could be risky if your nominee or family does not have prior knowledge or experience in managing large amounts of money. There is a possibility that they could lose money in poor investments or fraud.
Who should choose this option?
While the lump sum payout option could be risky, it can also be helpful for you and your family in times of certain situations like - settling existing loans. Say you had taken a loan and before you could finish clearing off the payment you passed away. Now, the bank and creditor will demand the money from your nominee or family in such cases the lump sum payment option becomes your nominee or family’s savior.
👉 Monthly Income Payout Option
In the monthly income payout option, your nominee or family will receive the claim settlement amount on a monthly basis. It is as similar as receiving your monthly salary. This can help your nominee or family in managing their monthly bills, rents, EMIs, etc.
Who should choose this option?
If your nominee or family does not have the sufficient financial aptitude of managing large amounts of money, then choosing the monthly income option would be a safe choice. As this customization provides the claims money in smaller installments for a longer period, even your family or nominee will be comfortable with the idea of managing the money.
👉 Lump-Sum + Monthly Income Payout Option
This customization is a combination of the above two options. Here, you can divide the claim settlement amount into two parts. The first half will be given to your nominee or family on a lump-sum basis, whereas the other half of the money will be provided in monthly installments. This option addresses both long term and short-term financial needs of your nominee or family.
Who should choose this option?
In case of any existing debt such as a loan, this option can help your nominee or family in clearing off the dues on your behalf. On the other hand, your nominee or family will also receive the term money as a monthly income to help them meet their monthly expenses.
Most of the time people make the mistake of choosing their “ideal” term insurance plan on the basis of the Claim Settlement Ratio alone. A claim settlement ratio is the percentage of claims an insurer has paid out during a financial year.
It looks like a simple metric that shows the probability of your claims being approved by the insurer, but this logic is flawed. The claim settlement ratio neither gives you the probability that your claims will be settled, nor the quality of claims experience your family will receive.
So what is the alternative for this?
Our team has analyzed over 100+ parameters and compared some of the top term products across the country and created Beshak⭐Ratings as the most data-backed, unbiased methodology to identify the best term plans! With Beshak Ratings, you can compare the top term insurance based on product features, claims experience, and customer service.
Further, if you want to ensure that your family or nominee experiences a smooth and simple claims process - you should start with making accurate and complete declarations on your proposal form. As long as you’re completely truthful in your declarations, there is very little chance that your family faces any delays or issues later on.
If you have any queries related to term insurance, you can post them on the Beshak Insurance Forum, and get answers from curated financial experts in 6-8 hours.
Customising a term insurance plan getting too complex, and way out of hand? There’s a simple solution for that right now.
Check out Beshak TruMatch - the fastest, simplest way to find the perfect term insurance combination for your family’s needs.
- You won’t be around at the time of the term insurance claim to help your family out.
- If you’ve appointed your wife as the nominee, you can take the policy under the MWP Act - it will ensure that your wife receives the claim first, before any of your creditors.
- You should make sure you choose the right claim payout option based on your nominees’ financial aptitude.
- Do not buy from an insurer on the basis of the Claim Settlement Ratio. Buy from an insurer who will settle your family’s claim quickly and smoothly.
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