Term Insurance Payout – Know How It Works

There are several options available in the market today when it comes to buying an online term plan, many of which come with flexible premium payment options. Similar to how insurers provide policyholders options for premium frequency (premium periodicity), they also give them alternatives for payout with the policies they sell.

What is a Term Plan Payout?

Term insurance plans are pure protection life covers that do not offer any benefits on maturity unless you have also opted for term insurance with return of premium (TROP), or other add-on covers. Regular term plans are designed to secure your family’s financial future if something were to happen to you, and as such, the only payout included under these regular plans are the death benefits that the nominees get in case of the insured persons’ demise during the policy term. When purchasing the term plan, the insured can choose how they want the death benefits to be paid to the beneficiaries/nominees. The most popular options for term plan payouts include:

• Single Lump Sum Payment: In this option, the sum assured, which is the money owed by the insurance company, is given to the nominees in a single lump sum payment. This allows the family to meet the larger expenses with ease, and it can also be invested.

• Lump Sum + Monthly Pay Outs: With this option, the nominees are paid a part of the sum assured as a lump sum payment, and the remaining is paid to them in monthly over the next few years, as decided at the time of purchasing the policy.

• Lump Sum + Increasing Monthly Pay Outs:  Additionally, the nominee also gets the payout in the form of monthly payments, which is increased every year for a duration specified at the time of policy purchase.

Other Benefits and Payouts

As mentioned, a regular term plan does not offer any maturity benefits for situations where the insured survives the policy term. However, a number of add-on covers can be opted for along with the term plan to enhance the benefits of the life cover. Under any term plan, what is covered, the benefits offered will vary depending on the covers chosen. Some of the most popular riders that people opt for with an online term plan include:

• Return of Premium: This is by far the most commonly selected rider in India today. With this rider, if the insured survives the policy term, the premiums they paid over the duration of the policy are returned to them in a lump sum payout.

• Accidental Death Benefit (Enhances Total Pay Out): This rider provides additional financial coverage if the policyholder passes away because of an accident. The nominees in such a situation are paid the sum assured under the rider, along with the death benefits covered by the base plan. However, the total sum assured of the rider cannot exceed the amount offered as death benefits in the base policy.

• Critical Illness (Pay Out in Case of Diagnosis): In case the policyholder is diagnosed with a critical illness that is covered by this rider, the benefits guaranteed under it are paid to the insured. This payment does not affect the original term plan, which continues to provide the life cover you opt for. A critical illness rider offers financial support in your time of need and helps you stay protected from rising medical costs.

• Waiver of Premium (Assured Benefits under Base Plan): In case a policyholder is diagnosed with a critical illness or suffers some disability in an accident and is unable to pay their premiums, the remaining premiums are waived off without affecting the coverage of the term plan. In a joint life cover as well, the premiums can be waived off with this rider in case of the primary policyholder’s death.

• Accidental Permanent Partial/Total Disability (Extra Pay Out): If an accident leads to total or partial disability, this rider pays out the sum assured to help replace the loss of income.

• Family Income Benefit (Regular Pay Outs): This rider aims to ensure that your loved ones are not financially inconvenienced in case something happens to you. This rider pays out a certain percentage of the sum assured to the nominees every month for a period that is predetermined at the time of policy purchase.

Selecting suitable payout options and riders for comprehensive coverage is a crucial part of understanding what is term plan. Make sure to find the most suitable one based on your needs and requirements.