To better meet the financial needs of the families of term plan holders, an increasing number of insurance providers now offer lump-sum and monthly death benefit payout options. Check out this post to know what you should select at the time of purchasing term plan.

One of the most important decisions that you’d be required to make at the time of purchasing a term plan is the death benefit payout option. In other words, you’d be asked to select how you would want the nominee to receive the death benefit in case of your demise within the policy duration.

Many insurance providers now offer multiple payout options like lump-sum and monthly payout. So, what should you select between the two?

Let us try to understand these options better to make the right decision:

What is Lump-Sum Death Benefit Payment?

As the name suggests, with the lump-sum option your policy nominee will receive the entire death benefit in a single payment after your death. For instance, if you are a married man with two kids and you keep your wife as your term plan nominee with a coverage of Rs. 1 crore, she will receive the entire death benefit at once with the lump-sum option in case of your death.

If you have liabilities like a home loan or car loan, the death benefit received by your wife could be used for paying off the same. Apart from loans, the money can also be used to achieve other financial goals, manage the education expenses of your children, and more.

What is the Monthly Death Benefit Pay-Out Option?

With the monthly payout option, the nominee will receive a certain percentage of the death benefit as a lump-sum amount at the time of your death. The remaining amount will be paid monthly for a duration of 10-20 years. Some of the insurance providers also offer increasing monthly payout option where the monthly payout consistently increases with every passing year.

For example, with the monthly option your wife would receive, let’s say 10% (Rs. 10 lakhs if the coverage is Rs. 1 crore) of the coverage amount on your death. The remaining 90% would be paid in monthly instalments for the duration you select. If you select 10 years option, the monthly payment in this example would be around Rs. 75,000.

Why Do Insurance Providers Offer Multiple Payout Options?

The term insurance payout options are offered to meet the financial requirements of the families of the policyholders. For instance, if you have reasons to believe that your nominee will not be able to use the lump-sum payment wisely, you can go for the monthly payout option.

Similarly, if you have liabilities such as a home loan or have teenage kids who would need expensive higher education some years from now, you can select the lump-sum payout option. This will ensure that the high death benefit amount paid in lump-sum could be effectively used for managing major expenses.

What Should You Select?

Both lump-sum and monthly payout options have their own benefits. You can make the decision by analysing the financial requirements and needs of your family.

It is generally recommended that if you have huge liabilities or expenses, you should consider a lump-sum option. But if you want your family to receive a regular income, monthly payout is the way to go.

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