When you buy an offline or online term plan, you aim to secure your family in your absence due to death or an unforeseen illness. Most term plans are designed to give a one-time lump sum payout to your family members on your demise, or development of a permanent physical injury due to an accident, or the diagnosis of an illness of a life-threatening nature.
 

But in an already emotionally turbulent time, it can be hard to oversee finances, especially a large lump sum amount. In fact, most family members of the person who bought insurance have found it difficult managing expenses and allocating the right amount of money towards their needs when they receive a large amount all at once.
 

To ease the strain of managing this large sum, the staggered payment option came into the picture.
 

What does a Staggered Payment in a Term Plan Mean?
 

In simple terms, a staggered payment option in a term plan means the option of receiving the sum assured payments in instalments instead of a one-time lump sum. These instalments can be monthly, increasing income monthly, or annual and vary from one term plan to another. They also depend on your selection of the insurance provider.
 

In the monthly payout mode, your nominee will receive the death benefit in equal instalments for a fixed period of months/ years. In the increasing income monthly mode, they will receive the death benefit in monthly instalments for a set period. However, each month or year, the percentage of the monthly income received increases to help you adjust and negate the effects of inflation. In the annual payout option, the nominee receives the income in annual instalments.
 

Also, there is another payment mode that combines the lumpsum plus monthly income options. Under this mode, the nominee receives a percentage of the total death benefit as a lump sum. The rest is paid out in monthly or annual instalments as chosen. Most term plans provide 50% to 60% as a lump sum and split the remaining 40% to 50% in equal instalments.
 

You have to choose a death benefit payout mode while buying the term plan because usually, changes are not allowed after you purchase the term policy.
 

Which Payout Option is Best for a Term Policy?

Most people prefer a one-time lumpsum payout. However, the monthly and annual income option has also become very popular due to the term insurance benefits it entails.

The term insurance with payment options best for you will depend on your family’s specific needs. That is why it is crucial to envision how and where your loved ones will spend the money and assess whether they can manage a large sum. If you are confident that your chosen family members can easily manage a huge lump sum and allocate their funds wisely, you can consider the lumpsum payout mode.

But you also have to account for the expenses and liabilities you will leave behind in your absence. For instance, if after your departure or immobility, your family has to pay off some loan or clear any huge pending debts immediately, a lump sum amount will benefit them.

But if they have to take care of monthly costs like your child’s tuition and school fees, or pending EMI payments, then a staggered payment option would be ideal. Moreover, if you feel like your loved ones are better at handling small and periodic amounts and don’t have much expertise in allocating large funds then go for the staggered payment mode. This way, your family can manage their money hassle-free and also take care of the rising inflation.

Ultimately, it depends on your family’s preferences and the financial responsibilities left behind for them to take care of. That is why it is a good idea to sit down with them and have a clear discussion of the payment modes they prefer and their life goals.

Can You Change the Death Benefit Payment Mode in Term Insurance?

As mentioned above, you cannot change the death benefit payout mode once you buy an offline or online term plan. You can receive the amount as a lump sum or monthly instalments for up to 120 consecutive months.

However, you can make top-up additions to your term policy when new life stages needs arise. These additions will increase the amount of life coverage your family will receive. You can also choose to switch paying the premiums between monthly, quarterly, half-yearly, and yearly options.

Moreover, you can also add extra riders^# to your term policy for an added layer of protection against accidents, disabilities arising due to them, critical/ terminal illnesses and much more.

To sum it up:

A lumpsum payout option is perfect for clearing immediate and looming apt-value debts or liabilities. It is a great payment mode for those who have ample financial knowledge, can execute and allocate their funds well, and not get fazed with a large amount.

On the other hand, the staggered payment option is ideal for the easy management of funds, a stable and continuous income, and inflation-adjusted returns. It helps your loved ones have a consistent source of income to rely on and live unfazed and hassle-free.

In the end, the payment mode best for you will depend on your specific requirements and responsibilities. You will have enough time to consult your family and make a concrete decision, so remain worry-free!

L&C/Advt/2022/Oct/2621