WHEN you are buying term insurance, there are many crucial decisions to make. Whether it is about the life cover, features and benefits, premium payment method, there are several things to consider. However, an important aspect that is often overlooked is death benefit payout of term insurance.
Under a standard term insurance plan, the beneficiaries are entitled to receive a death benefit in the event of the insured person’s demise. In some cases, where the insured has opted for term insurance with return of premium, they are also eligible to receive a survival benefit.
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These are the two main types of payouts that the insured and their family can receive under a term insurance plan. Nevertheless, it can be said that the death benefit is the primary purpose of buying term insurance. It can provide financial protection to your loved ones in your absence and help them through a hard time.
Along with that, here’s how term insurance payouts can be helpful during a financially difficult time:
- Replace Income Source
If the term insurance covers the sole earning individual of the family, its payouts are highly valuable. In the event of the insured’s death, they can fall back on the term insurance payouts to meet their requirements. In such a distressing situation, financial burden will not add to the family’s worries.
If you calculate term insurance coverage carefully, the payout can replace the income source for your family. Moreover, statistics like 99.42 % successfully paid claims in FY18-19 by the life insurance industry also provide a sense of reassurance. As the policyholder, you can be at peace knowing that the right term insurance will provide for your dependents in your absence.
- Fulfill Life Goals
Most of us envision our life in terms of different goals for particular stages in life. If you have family members dependent on your income to achieve their life goals, term insurance payouts can enable that in your absence. For instance, your child can get higher education without having to stress over the expenses.
It is unpleasant to think of your family compromising on their hopes for future due to lack of financial support. Hence, make sure that the death benefit payouts with the term insurance plan are adequate for such needs. A thorough term insurance comparison can help you find the right plan.
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- Pay Off Outstanding Debts
Any financial liabilities can be the cause of immense stress for your family in your absence. When you are securing coverage with term insurance, it is vital to keep your debts and obligations in mind. You can select the sum assured for the term insurance plan accordingly.
The term insurance payouts will allow your family to pay any outstanding repayments for home loans, car loans, education loans, etc. In the absence of a term insurance plan, your family may quickly run out of savings and face a financial crisis.
- Financial Independence
A notable benefit of a term insurance plan is that it gives the insured’s family a sense of financial independence. While they deal with the loss of a loved one, it is likely that managing money is not on their mind. In such a situation, the payout is a relief as it can take care of their needs.
With the death benefit from the term insurance plan, they can maintain their standard of living without depending on anyone else. You can leave them with a sizeable corpus that keeps them comfortable.
While the term insurance payout benefits are valuable, there is also a way to customize them according to your family’s preference. Not many of us may be aware that there are different ways of receiving the death benefit payout under term insurance.
Generally, insurance providers offer two ways of receiving the term insurance death benefit.
- Lumpsum Payout
When you opt for the lumpsum payout for term insurance, the entire death benefit is payable to the beneficiary in a single payment. At the time of purchasing the term insurance plan, you can choose the payout method by assessing its suitability for your family.
The lumpsum payout may also include any loyalty additions or bonuses on term insurance, if applicable. The benefit of lumpsum payout is that the nominees have access to a large sum of money in one transaction. It is up to them to use it for investment purposes or other needs.
Investing in other suitable financial products can cover significant demands such as education fees, medical bills, loan repayments, etc. Hence, when you choose a suitable payout method for term insurance death benefit, consider the particular needs of your family.
- Monthly Income Payouts
There is an option to choose monthly income payouts for receiving the term insurance death benefit. In this type of payout, the insurer offers a specific portion of the death benefit as lumpsum to the beneficiary. The remaining amount of the term insurance payout is paid at regular intervals as monthly income.
The time span of the periodic term insurance payouts is also predetermined, which can spread over the years..
By choosing the monthly payout for term insurance, the insured’s family members can replace the income source effectively. This option can help cover regular living expenses such as paying house rent, utility bills, and other such things.
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