What is Term Insurance with a Monthly Payout? Compilation By CA Sayan Ghosh

CA SAYAN GHOSH | 6235 Views | 05 May 2020 Bookmark

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Several points to know:-

Some insurance policies offer an option of selecting a monthly payout over a period of time instead of a lump-sum payout in case of death during the term.

The monthly amount can be opted as a flat amount or with a percentage increment every year to adjust for inflation.

The monthly payout is like a pseudo salary which comes every month for certain years.

This payout is exempt from tax for the beneficiary.

It is particularly useful for families with limited Financial exposure where there is a possibility of the lump-sum amount being mismanaged or squandered away.

Frequently Asked Questions

1.What is a term plan?

Term insurance is the simplest and purest form of life insurance. It provides financial protection to your family at the most affordable rates. You can get a large amount of life cover (i.e. sum assured) at a relatively low premium rate. The benefit amount is paid out to the nominee in case of death of the person insured.

2. Why do I need a term plan?

Assume, you earn an annual income of ? 7 Lakh. For your family’s financial well-being, this income should continue even when you are not around. There are a few ways that you can make this happen.

A bank a/c saving of ? 1 Crore as FD, which will at 7% generate a yearly income of ? 7 Lakh for your family.
A sizeable investment which might grow to a corpus of ? 1 Crore, before your death.
If you can't manage to create a large saving/ investment, then a viable option is a term plan of ? 1 Crore. It will pay this amount to your family on your demise. Premiums for a ? 1 Crore life cover start at ? 490 per month² only, which is less than half the cost you would pay for dinner with family at a restaurant.

3. When should I buy a term plan?

The earlier you buy a term plan, the better (and cheaper) it is. With time, the premiums become more expensive. For example, premiums for a 30-year-old, non-smoker male would amount to for a 30-year policy duration. The premium increases to ? 1428 p.m. if the policy is bought at age 40. Keep in mind the premiums get fixed at the age you purchase, for the entire policy duration.

Also, with current lifestyles and increasing instances of diseases and illnesses, it may become difficult to get a term plan later, as you grow older.

4. How much life cover do I need?

The life cover you need depends on your current annual income. We recommend that a life cover equivalent to 10-15 times your annual income is sufficient to provide for a safe future for your family.

If budget is a problem, you could go for monthly premium payment option over a yearly commitment. However, it is important to have a sufficient life cover so that your family’s financial security is not compromised.

5. What is Critical illness benefit?

If you are ever diagnosed with a critical illness, it can affect you physically, emotionally and financially. ICICI Pru iProtect Smart offers the optional benefit of covering 34 Critical Illnesses such as cancer, heart attack and kidney failure for a maximum of 30 years without any change in premium. But here’s the best part - It gives full claim payout on the first diagnosis of any of the covered 34 Critical Illnesses. No Hospital Bills required**. This amount can also safeguard your family against the loss of income arising out of the illness.