What is Monthly Payout in a Term Plan and Why You Should opt for It?

Sep 19, 2019 | 2 months ago | Read Time: 3 minutes | By iKnowledge Team
What is Monthly Payout in a Term Plan and Why You Should opt for It?

When choosing an insurance plan, the foremost thing on your mind is financial security for your dependents. While planning for their financial well-being is good, it is also important to think of how they’ll manage their regular expenses in your absence. If your spouse is not financially savvy, the best thing to do would be to invest in a term plan with monthly payouts. Consider it to be their financial security aid in the event of your demise. Read on for more on term plans with regular monthly payouts.

1. Monthly payouts v/s lump sum payouts

If your family is not financially savvy, a term plan that offers a lump sum payout may not be the best option. This is because the money could be spent quickly and may not sustain them for a longer period. When you opt for monthly payouts, the amount is disbursed every month for 10-15 years. You can pre-decide an amount when you buy the plan. Your family will get a monthly payment that will suffice their regular needs. Insurance carriers who offer term plans adjust payments to account for inflation over the years. Some insurers pay around 50% -70% of the sum assured and the rest is paid in the form of monthly installments to support the family’s monetary requirements. So, you can either get a combination of the two or just opt for monthly payouts.

2. Why opt for term plan with monthly payouts?

If you opt for a term plan with monthly payouts, the returns will be negligible on surviving the term. But it offers reassurance and you are required to pay a low premium. For example, some plans offer a regular income of Rs. 50,000 to the family at around Rs. 400 a month. You can buy such plans directly from the insurer’s website. The regular inflow of funds every month will secure your family, under any financial crisis that may come their way. You can customize these plans as per the requirements of your family. 

3. Who should choose term plans with monthly payouts?

A term plan with monthly payouts is the best option for families with low financial literacy. They may struggle with managing lump sum amounts and may not know how or where to invest the money. It may also be difficult for them to take a call on how to invest the single sum of money as it cannot be managed at an individual level. Even though many investment products give regular returns, term plans with monthly payouts are the best fit for single income families.

4. How to calculate monthly payout amount

Make a list of the regular expenses in your family. This list could include monthly rentals, home loan EMIs, car loan installments, utility bills, educational expenses, groceries, family outings etc. Add the expenses and you can arrive at the monthly payout amount. More importantly, it is also a good idea to factor in inflation while calculating the total expenses.

5. What are the options available under monthly payout plans?

Monthly payout plans are relatively new in the insurance space. You can choose from three options under these plans.

– Lumpsum with increasing monthly income: When you opt for this, your dependents get monthly payouts that increase annually at a rate of 10 to 20%.

-Equal lumpsum and monthly income: Your dependents will receive a lump sum amount that is proportional to the monthly payouts.

-Higher lumpsum and lower monthly income: Your nominee will receive most of the sum assured (around 50% to 70%) and the rest of the amount is released through monthly payouts.

Conclusion

By buying a term plan with monthly payouts for your family, you are ensuring they are well taken care of, in the event of your absence. Hence, instead of burdening your family with lump-sum payouts that they may not know how to manage, you can opt for the monthly payout system. This is one of the most convenient options for dependents. To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.


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