Term Insurance Plan Options

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Today term plans offer multiple options for payment of the claim amount.

1. Regular term plan with lumpsum payout:

This option is good if the nominee (in most cases wife and children) is financially savvy. The payout should cover all long-term and short-term expenses. The family should ideally have recourse to or knowledge of various investment options on how to effectively invest the money so as to make it last as long as they need it.

2. Monthly income payout

In this case, some amount of the cover is paid upfront at the time of the policyholder's death and the remaining is paid as monthly income. In some cases, there may not be any upfront payment. The monthly income could remain the same or it could increase, say by 5-10% every month, depending on inflation.

This option works for families where the nominees are not financially savvy but know how to manage their monthly expenses. Since salaried people are used to getting a monthly income, the family is used to spending that amount. They may not know how to handle a Rs 1 crore lumpsum payout. But because they are used to getting an income every month, they know how to spend for various heads

3. Return of premium

In this case, the premiums are paid back if the policyholder is surviving when the policy matures. It is meant for people who want to get something in return for the amount they pay. But it is more expensive than a regular term plan. Calculate if it is a better option to pay the higher premium or if you can earn more returns by splitting the additional premium into an investment and buying a regular term plan at a lower premium

4.Whole-life term plan

This works for people who want to leave something behind for their family. So although they retire at the age of 60 or 65 years, they continue to have a life cover for the rest of their lives. After their death, the sum assured is paid to their surviving family members. This too is more expensive than a regular plan.

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