Monthly Income Payout in Term Insurance

While elements like the term insurance cover, premium cost, and the riders are given importance, the payout option is always left for the end. In the case where the insured passes away, your beneficiary will receive an income payout, which is the sum assured. When purchasing your policy, you have to choose the mode of income payout keeping your beneficiary in mind. So, let’s look at monthly and lump sum income payout of the death benefit.

Why You Should Opt for Monthly Income Payout?

If you feel that your family won’t be able to manage the lump sum amount and will end up spending the large sum, you should definitely opt for monthly payout. When you choose the regular payout option, you are able to spread the sum assured over a long period of time. Hence, your family will keep receiving it as a monthly salary enabling them to manage the expenses of their month with that money.

Who Should Go for a Monthly Income Payout?

Term insurance with a monthly income payout is best for families that cannot manage money and plan the expenses accordingly. If they were to receive the lump sum amount, they wouldn’t know where to invest the money that has low risk and gives fixed returns. To avoid any kind of confusion and mismanagement of the funds, monthly income payout is recommended for families that have a single bread earner.

Types of Monthly Payout Options

  • Sum Assured + Increasing Monthly Payout: The monthly income payouts keep increasing as time goes by at a certain percentage
  • Half Sum Assured + Monthly Payout: Both the lump sum amount and the monthly payout is given to the beneficiary in equal proportions
  • High Sum Assured + Low Monthly Payout: The beneficiary receives a high sum assured along with low monthly income payouts

How to Calculate Monthly Income Payout?

You have to take the regular or monthly expenses of your family into consideration. Various payments like rent, education fees, loan premiums, basic necessities, bills, other investment premiums, etc. The number you get after adding all the expenses is what your monthly income payout should be. You can also consider inflation while calculating the final amount so that your family faces no financial problem.

Now that you are aware of what a monthly income payout is, you can decide what mode of payout suits your requirement. It also depends on your beneficiary and what would be better for them. An advantage of the sum assured payout is that you can claim the amount under Section 10(10D) of the Income Tax Act, 1961. You can also claim the premiums paid towards the term plan under Section 80C.