A term insurance plan offers life insurance coverage. However, unlike regular insurances policies, the tenure of a term insurance plan is fixed. Moreover, these plans do not offer any financial benefit upon maturity. Instead, term insurances offer a hefty death coverage on minimal premium amounts.
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Term Insurance Payout
According to the provisions of a term life insurance, the insurance provider promises a sum assured to the nominee upon a policyholder’s death. This sum assured is a pre-decided amount that is generally paid out in lump sum to the nominee upon the filing of the death claim.
Monthly Income Replacement Term Insurance Plan
A monthly income replacement term insurance plan is a type of term policy, wherein the sum assured is paid out in installments every month rather than as a lump sum amount.
Under an income replacement term insurance, the insurance provider pays a percentage of the sum assured monthly to the nominee of the policyholder upon making the claim. This regular source of income provides financial support to the policyholder’s family members, especially if the policyholder was the sole earning member of the family. As soon as the last percentage of the sum assured is paid, the policy is terminated.
Monthly Vs Lump Sum Payout
Monthly Payouts
Advantages of Monthly Payout
- Having a monthly payout makes managing the financials less of a hassle.
- Monthly payment ensures a steady source of income every month
Disadvantages of Monthly Payout
- Sometimes the financial needs at the time of the death of the policyholder might be more than the percentage of the sum assured dispersed.
- You cannot make lump sum investments with a monthly payout
- In case of any unfortunate event, where the insurance company goes under, you might experience some delays or non-payment of the monthly payouts.
Lump Sum Payout
Advantages of Lump Sum Payout
- A lump sum amount can be invested in full to reap maximum benefits
- Once the payment has been made, you are free from any legal obligations with the insurance provider
- No fear of the insurance company going under or facing any financial strain
- A lump sum payout can help clear any remaining debt on the policyholder’s part
Disadvantages of Lump Sum Payout
- With a lump sum payout, you might feel a bit overwhelmed to manage the finances.
In Conclusion:
As compared to monthly payouts under your term insurance, getting a lump sum payment definitely holds more advantage in terms of controlling your finances and making proper planning for their investment. A lump sum amount could also provide more financial stability during hard times, especially if the family members depended on the income of the policyholder.
Apart from the monthly payouts and lump sum payments, there are other types of payout methods offered under term insurance benefits, such as-
- Payouts multiplied
Some term insurance providers offer the provision to multiply the monthly payouts at pre-determined rates for a fixed percentage, annually. Sometimes, the payout percentage can also be decided on the rate of existing market inflation.
- Lump sum + Monthly Payments
This variant of a term insurance payout offers a combination of a lump sum as well as a monthly payment of the sum assured amount. In this mode of payment, a percentage of the sum assured amount is paid in lump sum to the nominee after the approval of his/her term insurance claim. The remaining part of the sum assured is then dispersed in monthly installments over a period of time.
