Should you make staggered payments in Term Insurance?

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THERE are several variations that are being seen in the term insurance market with insurance companies coming up with different ways to make the payout. The usual experience that individuals have seen is that there is a lumpsum amount that is received on the death of the individual. Now companies are also coming up with a payout that comes out over a period of time so that the requirement for funds for dependents is taken care of. The manner in which this new route stands up in terms of convenience and facilities is something that has to be evaluated. Here is a look at the issue in detail.

Manner of payout:

 

There are some variations in which the payout on the term policy can be received. A simple way is to have the lumpsum paid at the time of death of the individual so that the family members received this sum. Then the other way is to pay a small percentage as a lumpsum and the remaining amount as a regular payment over a period of time. Many insurance companies are now offering this second mode of payment and hence, they have to be evaluated to see whether they actually end up meeting the requirement of the individual. The payment is a certain percentage over a specified time period of several years and hence this has to be considered in terms of meeting the requirement of the individual.

Benefit:

 

One of the biggest benefits of this staggered payment plan is that the premium amount that has to be paid is lower than the standard term policy.

Already, term policies are cheaper that the other kinds of insurance policies like endowment plans because this is just concerned with the mortality rates and there is no savings element present in them. Now since the pay ment also does not have to be made at one go and this will be staggered, the input in terms of the premium would also be lower and hence, this is something that will benefit those who are looking at such policies.

Longer Payout:

 

The whole idea of not giving the amount as a lumpsum tackles two problems for individuals. One is that the lumpsum provides a large amount, but in many cases this is often not enough in the sense that it does not meet the regular cash flow for the individual through earnings by investing the amount. Instead of this, if there is a regular flow that is present then this would be able to meet the income needs for the family that would arise each year and hence this is something that would prove to be more useful.

The lumpsum also raises another problem in the form of managing the amount because this has to be invested and the responsibility comes on the individual to manage this, which is not possible or easy. This raises the tension in terms of actually generating the regular flow of return.

As against this when there is a regular flow over a period of time then the expenses that have to be met would be easy to complete. The time period for which the payout would be received would be an important factor as it should match the needs of the family once the earning member is no more. At the same time the amount that is actually paid out should be considered from the monetary angle and then the actual cover would have to be decided.

Both these factors are actually the final indication of whether the actual plan provides benefits for the family in the manner desired.

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