- Term life insurance plans can have several pay-out options
- Staggered payments work like income replacements and provide the means to maintain the standard of living
- Managing a monthly income is easier than managing a lump sum
Rakesh Tiwari, a call centre manager in Mumbai, has recently married and is now thinking of purchasing a term life insurance plan. He is 30 years of age and his wife, Mithila, is 24-year-old and a home maker.
He knows that term life insurance plans are the most cost-effective form of life insurance and offer substantial life insurance cover to the nominee in case of an untimely demise of the insured. He will be appointing his wife as the nominee in the plan. While speaking to his friend about this, Rakesh realized that term life insurance plans generally pay the sum assured as a lump sum benefit.
This thought was worrisome for Rakesh because he knew that in case he was not there, and his wife received a lump sum, she might not have the resources to deploy the large pay-out. So, he began to look at plans that would offer a regular income instead of a lump sum. With this option, his wife would not need to worry about managing the money, as the funds would be credited to her bank account in monthly installments.
Rakesh logged on to the Internet and searched for ‘term insurance plans online’. He immediately landed on the Exide Life Elite Term Insurance Planpage. He started reading and soon realized that this plan offers substantial cover, benefits which suited his need and also offered the type of pay-out options he was searching for.
In fact, this plan offers three pay-out options, out of which two caught his eye.
These two options were:
Lump sum with Family Income Benefit
This pay-out option states that in the event of demise of the insured, the nominee would receive 50% of the chosen sum assured immediately. In addition, 0.95% of the chosen sum assured will be paid to the nominee every month, for the next 60 months(5 years).
Since Rakesh would be opting for a cover of ₹2 crore, this would mean that in case of a claim, an amount of ₹1 crore will be credited to Mithila’s bank account immediately and the remaining amount will be credited every month in installments of ₹1,90,000 for the next five years.
||Sum Assured ₹ 2 Crore
|Lump sum Plus Family Income Benefit(FIB)
||50% of sum assured is paid as lump sum and 0.95% of Sum Assured is paid every month for 60 months (5 years)
||₹1 crore as Lump sum + ₹ 1.9 lakhs every month for 60 months (5 years)
Family Income Benefit
If this type of pay-out is selected, then no lumpsum amount will be given. Instead, 1.07% of the chosen sum assured will be paid to the nominee every month for a period of the next 120 months. When Rakesh calculated, this meant that his wife would receive an amount of ₹2,14,000 every month for the next 10 years.
||Sum Assured ₹ 2 Crore
|Family Income Benefit(FIB)
||1.07% of sum assured is paid every month for 120 months (10 years)
||₹ 2.14 lakhs every month for 120 months (10 years)
Rakesh chose the lump sum with FIB option, as he knew that a large amount would be required to meet the demands for college fees of his children. From then on, an amount of ₹1,90,000 per month would be enough to meet the monthly expense of his family till his children would become self-sufficient.