Life Insurance Simplified

How to Choose the Right Pay-out Option for Term Insurance Plan?

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Which one should you choose A onetime lumpsum payout or regular monthly payouts?

Term insurance plans are simple. You select a specific amount of life-cover for which you pay regular premiums. In case of your unfortunate demise, within the tenure of the policy, your family would receive the entire sum assured amount as a payout. However, how the payout is made to the nominee can be chosen by you at the time of purchase. You will have to select the payout option after assessing which option will suit your family.

Let’s look at the payout option provided by Edelweiss Tokio Life – TotalSecure+

  • Lump Sum Payout: This option offers a 100% lump sum payout to the nominee, in case of an event of the death of the policyholder.

For example, if you were to purchase a life cover of Rs 1 crore and you chose a lump sum payout option then this entire amount of Rs 1 crore will be paid to your nominee as a lump sum, upon your death.

  • Regular Income: As a term plan is an income replacement plan, under this option the sum assured will be divided into regular monthly incomes. Thus, your income will continue even in your absence as your family will receive regular income. If you opt for regular income, you can decide the period for which your nominee would receive the benefits i.e. 36, 60, 120 and 180 months.

You can also choose regular income with increasing monthly sums. Under the increasing income option, the monthly benefit will increase annually compounding @ 5.00% p.a.

  • Lumpsum + regular income option: You can choose to provide a portion of the sum assured as lumpsum and the remaining as a regular income option. This will help your family balance out their immediate financial needs and their recurring expenses.

How to choose the right payout option for yourself?

Ideally, the type of payout option you should choose would depend on your life stage and the financial goal/ liability that you intend to cover with it.

Life Stage Suitable payout option Reason to choose
Young and unmarried Lump sum payout option At this stage of life, your liabilities include a personal or a car loan repayment or helping your parents pay out the loans that they may have taken for your future (like marriage, higher studies etc). Hence, a term plan is essential for you to ensure that all these liabilities are taken care of, even in case of your early demise. A lumpsum payout option will help your family cope up with these debts as the money received can be immediately used to pay off all outstanding loans.
Married with no children Regular income As you have just begun a new journey with your spouse, your income would be an essential part of running the household, and you may even have certain ongoing EMIs. Regular income option would be a replacement of your income and will lessen the financial burden on your spouse. He/she can easily pay EMIs and manage monthly expenses.
Married with young children Lumpsum and regular income payout option You strive to help your children achieve their goals. A lump sum payout followed by a regular monthly income would assist your nominees close financial liabilities like loans, the regular monthly income will help your spouse cope up with the regular expenses like school fees, grocery and utility bills and daily household expenses.

While choosing a payout option, be sure to consider your liabilities, your financial goals and your life-stage.

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