What Are The Different Death Benefit Payout Options?
Updated On Aug 25, 2021
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A payout is a death benefit given to dependants or beneficiaries of a term insurance policy when the insured dies. While signing up for the policy, the insured gets to decide how the death benefit will be paid out. Your decision to choose a payout option must be based on your family’s financial understanding, financial liabilities and any future goals.
With a universal life policy, your premium payments may be increased, decreased, or even skipped, depending on such factors as the amount of premium you have paid into the policy, the policy value, any loans or withdrawals, and the current interest rate. This can be an ideal option if you like the payment flexibility of being able to pay higher or lower premiums as your financial needs change. And while your policy value may increase or decrease accordingly, you can still maintain your life insurance coverage, so long as the cash value remains positive.
Types Of Death Benefits Payout Options
Here are the different death benefit payout options:
The lump-sum payout option is the most popular option. It entails receiving death benefits in one go. In case the policyholder dies, the insurer pays a lump sum amount equal to the sum assured to the dependent (nominee/beneficiary) of the policyholder.
If you are doubtful that your dependents may not be able to manage the huge amount received as a death benefit efficiently, then you need not worry. To solve this problem, insurers also offer staggered payout options. In the staggered mode of payout, the dependents receive a portion of the sum assured as lump sum benefit and the remaining amount in monthly instalments for over 10-15 years.
Fixed Monthly Payouts
The lump sum with fixed monthly income payout option enables the dependent of the policyholder to receive around 50 to 60% of the total sum assured amount as a lump sum and the remaining amount as monthly instalments. Besides, some insurers provide 100% sum assured as a lump sum payout plus an additional payout each month for the next few years to the dependent.
Increasing Monthly Payouts
There is an option of increasing the monthly payout which constitutes the payments of the total sum assured in gradually increasing monthly instalments.
Financial planning experts believe that if you have a good financial understanding and have the confidence that you will be able to manage the lump sum money efficiently, then can go for a lump sum payout option or else go for the staggered option that pays the sum assured as per your convenience and comfort.
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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.