Meaning Of Income Benefit In Life Insurance
Published On Jan 22, 2022 10:00 AM By InsuranceDekho
Table of Contents
- How Does An Income Benefit Work?
- Types Of Income Payouts From A Life Insurance Plan
- When Should You Choose A Life Insurance Plan With An Income Benefit?
An income benefit is a feature that some life insurance plans come with. According to this feature, the insurance company offers financial payouts on a regular basis to the policyholder (or the nominee, as the case may be). These payouts act like a source of income for the recipient. And the amount of income to be paid out is generally determined at the time of purchase itself, and it is calculated as a percentage of the annualized premium.
How Does An Income Benefit Work?
Before you buy a life insurance plan that offers an income benefit, it's important to understand how this works. That way, you can make a more informed decision about whether or not this is the right kind of life cover for you and your family. So, here is a generic timeline showing you how things work in an income benefit plan.
Step 1: Policy purchase
You purchase the life insurance policy offering the income benefit. These plans typically come with a limited premium payment option.
Step 2: Premium payment
You pay the premiums for the limited premium payment term.
Step 3: Policy term
Then, for the rest of the policy term, you need not pay any premiums.
Step 4: Commencement of payouts
Once the policy term comes to an end, the insurer starts making regular income payouts to you.
Step 5: Payouts period
You will continue to receive these payouts throughout the benefit payout period, which you'll have to choose at the time of purchase..
Types Of Income Payouts From A Life Insurance Plan
Depending on the type of income benefits offered, there are two different kinds of payouts that you can receive from an income benefit plan. Here's a closer look at the two of them.
Fixed Income Payouts
As the name indicates, the income benefits paid out under fixed income plans do not change over the benefit payout period. They remain constant, at the same level. For instance, say a fixed income payout plan offers income benefits at the rate of 110% of the annualized premium for 20 years. So, if the annualized premium is Rs. 1 lakh, the annual income payouts will amount to Rs. 1,10,000 each year, over the 20-year period.
Increasing Income Payouts
Here, the income increases over the benefit payout period, based on a predetermined multiplying factor. So, if you opt for this kind of a life cover, ensure that you take a good look at the amount of increasing benefits you will enjoy on a year-by-year basis.
When Should You Choose A Life Insurance Plan With An Income Benefit?
A life insurance plan that offers income benefits can be beneficial to everybody. However, there are some specific situations where this benefit may be particularly useful. Here are some such scenarios where an income benefit can come in handy.
1. If you are the sole earning member of your family
An income benefit can help replace your salary after you've retired. This way, you can continue to meet your needs and your family's requirements.
2. If you have one or more dependents
An income benefit can help you take care of your dependents even when you are earning from a steady job, since it can supplement your regular earnings.
3. If you have EMIs to pay
EMIs can eat into your regular income, leaving you with little money to meet your regular needs. An income benefit plan can help compensate for this by providing you with additional income.
4. If you want to combat inflation
Inflation reduces the purchasing power of money. But with the added income from an income benefit plan, you can ensure that your loved ones need not compromise on their standard of living.
That sums up the key details of the income benefit in life insurance. Different insurers offer their own range of income benefit plans. Make sure you choose a reliable insurance partner to secure your future, so you can enjoy regular income payouts in addition to - or as a replacement for - your regular income.
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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.