What is Monthly Income Plan in Term Insurance?
The cost of living is increasing day by day, which is why you will always want to make sure that your loved ones remain secure even when you are no longer with them. While buying a term life insurance plan, it is necessary to know that term insurance not only provides you protection benefit, but also comes up with several other benefits such as add-ons like an accidental death cover or disability benefit where in the case of the disability, it can either be permanent or temporary. Added to that, some plans may even provide monthly pay out benefit in case you are diagnosed with a critical illness as mentioned in the policy document. However, these options are voluntary and can only be added to your policy as per your requirement.
What is Monthly Income Plan in Term Insurance?
What is that If someone asks what is a monthly income plan in term insurance or what are its benefits, this is what it does. New term plan policies are coming up with the facility of providing sum assured plus monthly income to your family if something happens to you. Curious about what is a monthly income plan in term insurance? New term plans are providing monthly income for fixed tenure, take for instance 10-20 years in addition to the one-time payment of the sum assured. By availing it you may end up adding extra cost to your annual premium. The monthly payouts are tax-free and it is advisable to avail this plan when your dependents aren’t working. It depends on your situation, if you feel that your family members may not know how to handle a lump-sum pay-out after your demise, then it is recommended that you go for this option. Because having a regular income makes it seem less stressful than taking a lump sum, and that too when your beneficiaries are not experienced investors.
What are some monthly options available in Term Insurance?
Let’s take a look into some monthly options that you can consider while buying a term policy:
1) Part sum assured with monthly income (half)
Under this, about 60-70% of the total sum assured is paid to beneficiaries in a lump sum after the demise of the policyholder and the remaining amount is paid in monthly installments, which ultimately helps support the family’s monthly financial needs.
2) Part sum assured with monthly income (equal)
In this case half the total sum assured is paid in a lump sum to the beneficiaries, while the remaining half is paid out as monthly income in equal proportions.
3) Sum assured with increasing monthly income
Under this, the monthly income increases by 10-20% on an annual basis.
Monthly Income Plan in Term Insurance – Which would be ideal one?
As a cautionary note, you must 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 before buying any term plan for yourself.
1) You could consider the sum assured with increasing monthly income option because it will ensure your family is covered against inflation.
2) You can also choose the increasing income option where the regular monthly payout will increase annually by 5% p.a. (Compounding). The monthly payout option is best for families that are not very well-equipped with investments and cannot manage the huge amount that they would receive on the unfortunate death of the policyholder. This is basic common sense that the loss of a loved one may not be the best time to make a wise financial decision you’re your family will receive 100% lump sum payout. Money paid out to the nominee in periodic intervals will help dependents to meet their regular financial liabilities and fulfill their monthly monetary needs as well.
3) You can evaluate the lump sum and the staggered payouts from an overall return perspective the money and keep in mind that the available today is worth more than the same amount in the future. A good way to calculate the overall benefit of a staggered payout is by knowing its internal rate of return. The staggered payout options aren’t that lucrative when you take into account their IRR. In most plans, the IRR is below 7%. The 4-7% returns are tax-free and may appear attractive compared to the returns from FD rates, where you have to pay tax on interest income.
It is essential to understand the different instruments of investments available before one goes ahead with a single plan. For those wondering, “what is a monthly income plan in term insurance”, can refer additional info at The Future Generali Flexi Online Plan that encompasses all of the tax benefits and offer life insurance cover of Rs. 1 Crore with premiums amounting to just Rs. 16 each day.
If you enjoyed this article, share it with your friends and colleagues through Facebook and Twitter.
Team – Myinvestmentideas
What is Monthly Income Plan in Term Insurance
- Best Mutual Funds to invest in 2024 (as per Google AI Gemini) - February 20, 2024
- GPT Healthcare IPO – Should You Invest? - February 19, 2024
- 11.5% Chemmanur Credits and Investments NCD Feb-24 – issue Details and Review - February 18, 2024