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A life insurance policy is a good tool to ensure financial safety for your family. But, like any other tool you need to know how to use it for maximum efficiency. Used bluntly, presence of life insurance can cause as much stress as it promises to resolve.
Nowadays, the best term insurance plans have a regular income feature. Here are five reasons this is an essential choice for you:
The best life insurance plans give you the option to choose how it will pay the claim amount to your family. Traditionally, the nominee(s) will receive a large sum of money in their accounts and that will be it. But is it enough to get a huge sum of money in your account?
Suddenly, a person who is used to handle about Rs. 40,000 – 50,000 in a month, receives Rs. 1 crore in the account and is expected to live on this money for next 30 to 50 years. How comfortable do you feel your family would be managing a sum this large and trying to achieve all their goals and needs from it?
What are the chances that the family will use the money efficiently and not underspend or overspend?
What are the chances for the family to invest this money and generate a regular income stream?
As complicated these questions are, the answers are no less troublesome. This is why insurers, including Canara HSBC Life, have included a regular income pay-out option in the term insurance plan.
One of the solutions for generating safe and regular income from a large corpus is an annuity plan from life insurers. But there are a couple of challenges with this approach:
So, if you could invest the lump sum with a life insurance company, you would still want to avoid these challenges. Therefore, the inbuild regular income feature in the term plan is a far better option.
It takes away all the effort from your family and nominees in this direction and the income starts right with the claim settlement.
Also, remember that you cannot switch to a regular income option later during the coverage. This is one option that reflects in your regular premium payments thus, you need to carefully select the feature at the time of purchase.
However, remember that the family will still need the lump sum money to take care of their life goals. While they use the regular income towards their daily needs, they can add the money from the pool to the goal-based long-term investments.
So, you will need to divide the total sum assured between a sum which will generate the income and another which will go out lump-sum. Canara HSBC Life Insurance’s iSelect Smart360 Term Plan allows you to estimate the income that your family can receive. You can divide your total sum assured accordingly.
One of the major concerns Vaibhav raised was about his family trying to build an income stream from the life insurance corpus. Term plans like Canara HSBC Life’s iSelect Smart360 Term Plan have a ready solution for this problem.
While lump-sum Payout is the default option available in all term plans, iSelect Smart360 Term Plan allows you to divide the lump sum benefit into (a) Corpus for regular income payment and (b) Corpus for Lump sum payment.
Regular income feature in term life insurance plan also allows you to provide inflation-adjusted income to your family. You can select the annual rate of growth for the income pay-out. For example, i-Select Star term plan gives you options of 5% or 10% simple annual growth rate.
How Does Growing Income Pay-out Work?
If you had selected 50% of your total sum assured (Rs. 1 crore) for regular income and want the income to grow at 5% every year, your family’s income in the first year would be about Rs. 41,700.
This is the sum your family will keep receiving for the next 12 months and then this amount will increase by Rs. 2085 (5% of 41,700) in the next year, and so on. Remember that Rs. 2085 will be the only increment as growth rate is a simple rate.
This is a better option from a behavioural perspective, as your family will have some reprieve from inflation in the way of increasing monthly income, whereas, a fixed sum may cause their lifestyle to decline over a long period due to inflation.
Regular monthly income is more useful when you have children’s expenses and regular household budgets to maintain. Unlike the larger life goals, kitchen and lifestyle expenses cannot be clubbed, migrated, or postponed. The expenses must happen and thus the regular income is an important factor for peace of mind.
An automated regular income pay-out from the term insurance policy does not need any effort forms your nominees except for claim application. Therefore, it is the most convenient option for them if you choose at the time of purchase.
It is Handy at Other Times As Well
It’s not only the death claim where regular income pay-out works so well. Even in claims of disability or critical illness, where there are high chances for you to lose your income, regular income feature is a breeze of fresh air.
Just a few things you should be careful with if you want to use this feature for the convenience of your family:
Canara HSBC Life Insurance Company allows your family to receive regular income pay-out for up to 40 years.
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