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Term Insurance

Is Term Insurance with Monthly Income a Good Option?

Given that the cost of living is rising each day, it is up to you to ensure that your near and dear ones are financially secure in the event you are no longer with them. To meet this need, insurance companies have designed new term policies where a monthly pay-out is provided to your family members should something happen to you.

The OneInsure Research Desk has also observed that an increasing number of urban Indians are opting for the combination of mutual funds and term plans in their financial portfolio. Let's briefly see why term plans have become the foundation of the urban Indian's financial planning:

  • Term plans, when triggered, act as income replacement for your family in your absence
  • Typically, a term plan's pay-outs are 10 - 15 times the policyholder's annual salary, which is sufficient to ensure all liabilities (home loans, car loans, and so on) are paid off and there is enough left over to maintain the same lifestyle while educating children in good schools

Coming to the question of whether term insurance with monthly income is a good option - well, it all comes down to your situation. Monthly installments help support your family’s regular financial needs. If you feel that your family members may not know how to handle a lump-sum pay-out in the unfortunate event of your demise, then it is recommended that you go for this option. Having a regular income makes it seem less stressful than taking a lump sum, especially when your beneficiaries are not experienced investors.

Some monthly income options you can consider while buying a term policy:

  • Part sum assured (high proportion) with monthly income - Under this, about 60-70% of the total sum assured is paid to beneficiaries in lump sum after the passing away of the policyholder. The remaining amount is paid in monthly installments, which will help support the family’s monthly financial needs.
  • Part sum assured with monthly income (equal proportion) - Here, half the total sum assured is paid in lump sum to the beneficiaries, while the remaining half is paid out as monthly income in equal proportions.
  • Sum assured with increasing monthly income - Here, monthly income increases by 10-20% on an annual basis. This feature helps beneficiaries deal with the effects of inflation.

Before buying a term plan, make sure to compare the different premium payment modes and select one that you believe will be the most useful in catering to your family’s financial needs. You could consider the sum assured with increasing monthly income option, as it will ensure your family is covered against inflation.



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