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When you buy a new term insurance policy, you may invariably compare the benefits offered, the premium charges, etc. However, another critical aspect that you must consider is the payout options offered by the insurance company.
Generally, most insurers offer three payout options, which are discussed below:
One-time lump sum payout
As the name suggests, in this payout option, in the event of your demise during the policy period, the insurance company pays the entire sum assured, i.e., the death benefit, to the nominee in a single instalment.
Generally, most policy buyers opt for this payout option. Getting the 100% payout at once can allow your family members to pay off many significant debts (if any), like a home loan or a business loan.
Level-recurring payout
If you think the nominee is not financially savvy, you can choose a level-recurring payout option. In this option, the insurance company pays 10% of the sum assured in a lump sum while settling the claim request. While the remaining amount is paid in smaller instalments.
The payment frequency and the percentage of the amount paid in each instalment are pre-decided and mentioned in the policy document. However, generally, insurers pay 6% of the sum assured every year over 15 years.
This payout option can be helpful for the family to meet their regular expenses, and it can act as an income replacement in your absence.
Increasing-recurring payout
The increasing-recurring payoutoption is much like the regular-increasing payout option. The insurance company pays 10% of the sum assured in a lump sum during claim settlement in this option.
They pay the remaining 6% of the amount at the end of the first year. After this, every year, for the next 15 years, the payout increases by 10%. In the purview of the rising inflation every year, choosing this payout option is a good choice as it can help your family meet their regular expenses without facing any issues.
Benefits of buying term insurance plans
One of the most significant benefits of buying term insurance plans is that they have the lowest premium compared to other insurance products in the market. Today, you can easily purchase a term insurance policy with coverage up to ₹1 crore at premiums starting from less than ₹23 per day.
Apart from helping you secure your family’s financial future, term plans are also an excellent tax-saving instrument. You can get tax benefits up to ₹1.5 lakhs in a financial year on the premium you pay for the policy under Section 80C of the Indian Income Tax Act.
Today, most insurance companies give you the flexibility to choose the premium payment mode. You can choose to pay a single one-time premium payment mode or the regular premium payment mode. You can pay the premium every month, quarterly, half-yearly, or annually in regular mode.
Terms insurance policies are known to offer high coverage at a lower premium. You can choose the sum assured based on your specific needs. Generally, most policy buyers prefer buying a policy with a sum assured of ₹1 crore. However, you can purchase a term plan with a sum assured of Rs. 2 crores or more.
Final Word
The payout mode is an essential factor to consider. It helps you know exactly how the insurance company will pay the policy benefits to your family after you are gone. Know your needs and choose the payout option accordingly.
