Term Insurance Payouts-Lump Sum Or Staggered?

Term insurances help you secure your family in case of any unfortunate event. It is one of the traditional investments made by many people even today. In today’s world, when we live with unpredictability every day, term insurance can come handy.

In this article, we will take you through a brief understanding of what is term insurance and two different ways you can opt for term insurance pay-outs for your family.

What Is Term Insurance?

Term insurance is the simplest form of life insurance. A term policy offers high life cover with a relatively low premium. There is no in-between for term insurance policies. You either get paid or you don’t. Therefore, it can also be called the purest form of life insurance. In case of the sudden death of the policyholder, the family receives the life over in two ways: either a lump sum or staggered.

Which payment option should you opt for while choosing term insurance plans? We will help you out. Keep reading.

Lump Sum Pay-Out

As we mentioned before, term insurance plans are way cheaper and simpler than other life insurance policies. As a policyholder, you need to pay a yearly premium for a term of 20 to 30 years against the insured life cover. In case the policyholder faces sudden death, his/her family gets the assured sum from the insurer. The insurer pays the amount equal to the life cover in lump sum. In case the policyholder survives throughout the term, nothing is paid to the family of the policyholder.

Staggered Pay-Out

With a lump sum pay-out option, the family might be at risk of losing all money if they do not have the experience or understanding of saving and investing money in the right place. In such a case, the family might be at risk of going bankrupt or engage in wrong practices to make enough money. Therefore, insurance companies have introduced an alternative pay-out method called the staggered pay-out. You can buy an online term plan and still get the staggered pay-out option.

With staggered pay-outs, the percentage of the total sum assured is paid in a lump sum and the remaining is distributed over a fixed time.

Here are the different staggered pay-out options you can opt for:

  1. Monthly income: The beneficiary receives the total sum assured in the form of equally divided monthly instalments for a fixed period.
  2. Increasing monthly: As the name suggests, this plan ensures the sum amount in increasing monthly instalments method. The rate of increase differs from 10% to 20% to help the beneficiaries fight inflation.
  3. Lump sum with monthly income: In this plan, 50% to 70% is paid to the beneficiary just after the death and the remaining amount is paid every month so the financial needs of the family are met efficiently.
  4. Lump sum with increasing monthly income: In this plan, the beneficiary receives a part of the life cover in a lump sum and the remaining is sent on an increasing monthly income basis. The rate of increase ranges from 10% to 20%.

You can go for online term plan or a traditional one, you get all these options for catering to your needs. The lump sum pay-out is good for people who have loans or student fees, or other urgent expenses that need to be covered on priority, while the staggered pay-outs are perfect for beneficiaries who struggle with handling a large corpus. Be it online term plan or traditional term insurance, you should opt for a pay-out method that suits your beneficiaries.

Author:

Leave a Reply