Steps to Make Your Online Term Plan Your Family’s Monthly Pay Cheque
The primary objective of buying a term insurance policy is to secure the financial future of your family. But, what happens if your family members are not financially sound and struggle to manage the expenses in your absence? If you think that your family member who receives the insurance benefit is not financially savvy, you can choose the monthly pay out option while buying a term plan.
Depending on the policy’s sum assured, the monthly pay out can last for a long time and allow your family to meet their expenses without any hassles.
What is term insurance with monthly pay out?
When you purchase a term plan online, most insurance companies give you the flexibility to choose the pay-out mode. Generally, most people choose the lumpsum mode wherein the insurer pays the entire sum assured in a single payment to the nominee post your demise. But, if you think that your family member may struggle with handling the huge amount, you can choose the monthly pay out option.
Under this arrangement, the insurer will pay the benefit proceeds in smaller instalments every month until the full amount is paid. In other words, this arrangement will work like a monthly pay cheque for your family. This pay out option is an ideal choice for families that have low financial literacy.
One of the critical aspects of choosing the monthly pay out option in a term insurance policy is to be wise with the deciding the amount you want your family to receive every month. Remember, the amount your family receive will as act an income replacement or a monthly pay cheque when you are not around.
So, while you decide the amount you must remember the following steps:
- Firstly, assess your family’s total monthly expenses.
- Add all the expenses, this should include the rent, EMIs, educational expenses, utility bills, groceries, etc. You will arrive at a certain number.
- This could be the monthly amount you want the family to receive from the insurer.
- However, it is wise to consider the inflation factor and choose a slightly higher amount so that your family’s spending capacity remains unaffected and they can maintain their regular lifestyle.
Is it possible to customise the monthly pay out amount?
The term plans with monthly pay out options are relatively new in the insurance industry. And, generally, the insurance companies in India offer three pay out options and you can choose any option to suit your needs.
Option 1 – Income monthly income and lump sum
As the name suggests, under this pay out option, the insurance company pays a specific portion of the sum assured amount in a lump sum amount and the rest is paid in smaller instalment every month. The amount increases annually by 10% to 20%.
Option 2 – Equal lump sum and monthly payment
Under this plan the policy beneficiary receives a lump sum amount equal to the monthly pay out.
Option 3 – Higher lump sum and smaller monthly pay out
When you choose this option, the insurer will pay a major portion of the death benefit amount in lump sum and the remaining amount through monthly instalments.
Thus, by buying a term plan with monthly pay out option, you can ensure that your family gets a steady income. It is the ideal pay out option for dependents who do not want to deal with the burden of handling a lump sum amount.