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Term Life Insurance: Should You choose Lump Sum Payout Or Staggered Payout?

Updated On Oct 29, 2021

When you buy a term insurance plan, it comes with the option of receiving the total sum assured – also known as death benefit – either as a lump sum or in the form of staggered payout. The process of lump sum payment is quite simple. In case of the sudden death of the policyholder within the policy term, the dependents of the deceased get the entire sum assured as a lump sum payout. On the other hand, there is a staggered payout option which is a relatively new phenomenon.

Lump-Sum Payout

Traditional term insurance plans are believed to be the simplest and cheapest form of life insurance. Under these plans, the policyholder pays a yearly premium for a fixed time period, mostly 20 to 30 years, against a total sum assured. In case the policyholder dies, the insurer pays a lump sum amount, equal to the sum assured, to the beneficiary of the policyholder. However, if the policyholder survives the term period, nothing is paid to the family of the policyholder. The premiums for traditional term insurance plans are relatively low and there is no return of the premium plan if the policyholder survives the term.

Staggered Payout

Due to the lack of required knowledge, families often fail to properly manage the lump sum amount received against the term insurance policy of the deceased family member. To help families properly manage the finances in the best possible manner, most insurers have introduced different payout options like monthly or periodic payout option. Under all these plans, the beneficiaries receive some portion or % of the total sum assured as a lump sum and the remaining amount is received by the beneficiary in the form of monthly instalments that run over a period of 15-20 years.

Different Staggered Payout Options

  • Monthly Income

Under this plan, the beneficiary receives the total sum assured in equally divided monthly instalments for a pre-fixed time period.

  • Increasing Monthly

Under this plan, the beneficiaries receive the total sum assured in increasing monthly instalments. The instalments increase at a rate of 10% to 20% in order to help the dependents fight inflation.

  • Lump-sum with Monthly Income

Under this plan, the beneficiary of the policyholder receives around 50% to 70% of the insured amount just after the death of the insured and the rest of the amount is paid through monthly instalments. This helps the family of the insured to meet the day to day financial needs.

  • Lump-sum with Increasing Monthly Income

Under this plan, apart from receiving some portion of the total sum assured as lump sum, the beneficiaries receive the remaining sum assured in monthly instalments with an annual increase of 10% – 20%. The plan helps the beneficiaries in dealing with yearly inflation.

Conclusion

All you need to do is analyse your family’s needs and requirements, and choose the most appropriate option for you. It is suggested that wherever liabilities are required to be paid off, it is advisable to go with the lump sum payout. However, if you A term plan is no doubt a must-have for any breadwinner of the family and both these payout options have their own set of benefits.wish to get your regular income ensured, staggered payout plan fits the bill.

Also read: 

Advantages and Disadvantages of Term Insurance in India

Why Should You Consider Buying Term Insurance for Family

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.

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