Based on your requirement, it is essential that you choose the right payout on your term insurance. Check the choices available.
As the primary breadwinner of the family, it is your duty and responsibility to protect your loved ones. You work hard. You provide them with the best possible lifestyle. But, what is to happen if you fall prey to sudden death? Have you made provisions for this scenario? Your best option may be a term plan.
Buying a term plan is step one of securing your family’s future; the next is to choose the correct payout option for the term plan. Read this article to understand how the various options available and choose the one that suits you best.
Different Payout Options Offered by a Term Plan
There are 2 options which are:
- One-time or lump sum
One-time or Lump Sum Payout
It is a basic option where the insurance provider pays the nominee the entire death benefit as a single amount. After this, the insurer and nominee have no other contact. The insurance deal comes to an end.
Here, the death benefit is paid in parts over the course of many years. It is done to provide the policy holder’s family with an income replacement after the death of their breadwinner.
Types of Staggered Payout
There are 2 categories:
- Monthly income plan: The death benefit is broken up into uniform parts. These parts are provided to the nominee over a period of months and years. The period of payment is pre-decided. The nominee continues to receive an amount on monthly basis for the entire duration.
- Increasing monthly income plan: The death benefit is broken up into different sums. The amount paid increases with time. This is done while keeping the inflation in mind.
Which Payout Option Should I Choose?
The payout option you choose will determine your family’s financial security in your absence. Choose the option keeping the financial knowledge and strength of your nominee in mind. If your nominee possesses a good understanding of the financial markets, investment patterns, etc., opt for the lump sum option else, go in for the staggered one.
When Can I Choose the Payout Option?
It is best to choose the correct option when buying the term plan. Once done, explain the process to your nominees. They will then know what to do with a claim.
Term insurance covers your life and protects your family in your absence. No one ever imagines their sudden death, but misfortune does strike. So while you would try to stay safe and healthy, make provisions to secure your family from any financial woes. Buying a term plan is not enough. You must choose the most appropriate payout option too. Keep the points mentioned in mind. You will then make the right decision.