Modern-day life insurance plans are very helpful. Certain types of life insurance, such as term insurance, are affordable and easy to get. There are several other benefits of term insurance including the handy payout options. What are these options and why should you be aware of them? Let’s find out.
Different payout options in term insurance
There are three major payout options for you to choose from:
- Lump-sum payout
As the name suggests, here, the entire death benefit is paid out in a single installment and the policy terminates.
- Staggered payout
In the staggered option, the death benefit is broken up into small parts and paid over a period of time, at regular intervals. This could be provided on a monthly basis as well to meet monthly expenses.
- Combination payout
Here, a part of the death benefit is paid as a lump sum, and the remaining part is paid in installments over a fixed period of time.
Points to remember when choosing the payout option
The payout option needs to be selected when you buy the term insurance plan. To ensure you have chosen the best option for your family, keep these points in mind:
- Financial wisdom of your nominee
First and foremost, you need to understand how well your nominee(s) understand the money matters. If you have a family member who is a financial expert and can invest and make good use of the money, you may opt for a lump sum payout. If however, your nominees are your elderly parents who won’t be able to effectively manage the entire sum at one go, opt for the staggered option so that the sum assured works as your salary replacement and helps them to pay their bills easily over a period of time.
- Needs and requirements of your family
The next crucial point to remember is the economical need of your family. Let us assume you had taken the term insurance plan to cover a home loan. Then, opt for a lump sum payout so that your beneficiaries can clear the home loan with the payout and have a permanent roof over their heads even in your absence. However, if you took the term plan to cover the overall financial needs of the family, such as medical expenses, housing expenses, education costs, etc, opting for a staggered payout will be a much better option. Your family can use the monthly payouts as your salary replacement and take care of their financial needs in a smooth manner.
By keeping these two crucial points in mind, you can easily select the best payout option for your term insurance cover.
The bottom line
The entire purpose of getting term insurance is to protect your loved ones from financial challenges after your demise. Getting the cover is not enough – you also need to ensure the payout would help them in the best possible way after you are gone. A good way to ensure this is by choosing the proper payout option. Keep the points mentioned above in mind and make a wise and intelligent selection.
