Many online life insurance plans nowadays, offer pay-out of death claim as a regular income to nominees. Have you come across such plans and wonder if this feature is anything useful?
Life insurance has been around to ensure financial consistency of the social unit, which is your beloved family. A family which loses its breadwinner can lose its financial status fast, jeopardising the financial future of its younger generation. Thus, life insurance plans, and especially term insurance plans would offer a large sum of money to the bereaved family and help them fulfil their life goals.
While, most death claim pay-out will happen as a lump-sum and the nominees would struggle to use the money judiciously. The family would have two financial objectives to achieve out of life insurance proceeds:
To accomplish the first goal the decision-maker would again go back to the insurer and try to secure a pension or annuity plan. There were many reasons to go back to the insurer but the following two have been the most prominent - Life insurance investment can guarantee returns and second, any other safe or fixed income investment would attract more tax liability, in the way of TDS deduction at source, or had limited capacity to accept funds (Post Office MIS).
So, the simple solution where everyone could go home happy was to integrate the income pay-out with the life insurance claim itself. This immediately resolved both the family problems:
Online term insurance plans from Canara HSBC Life, iSelect Smart360 Term Plan, offers very customizable regular income pay-out option. There are three choices available in this plan with the feature
Fixed Regular Income Pay-Out
Fixed regular income pay-out means the income doesn’t change over the years. For example, if the monthly income amount based on your corpus allocation towards regular income is Rs. 50,000 per month; your nominee will receive Rs. 50,000 per month throughout the entire income tenure after a claim.
The iSelect Smart360 Term Plan uses a multiplier to define the amount of income at the time of claim. See the following example:
The only difference between fixed and growing income pay-outs is the multiplying factor. The factors for growing income at 5% and 10% are 8.34 and 7.11 respectively. Therefore, your nominee’s monthly income in the first year will be as following:
You should note that the growth in both the incomes will be at a simple interest rate only.
As much you’d like to think the income doesn’t continue indefinitely. Canara HSBC Life’s iSelect Star online term plan gives you two options to choose from:
So basically, you get to decide how much income your nominee will receive, how much it grows every year and how long will it continue.
Since the income will only last for a limited time, you can understand that the insurance must also provide retirement corpus for your spouse. Therefore, you should always divide the corpus between regular income and lump-sum amounts.
While regular income is a good addition, it helps to have a large sum of money to invest in your long-term financial goals.
Also, growing income could be a better choice for your family rather than a fixed income for a long time. The simple reason is that lifestyle grows over time, especially over more than 10 years. With the income remaining the same, the family’s lifestyle will have to decline to keep up with the inflation.
However, with income growing at a small percentage the family can take care of the inflation problem. So, make the family’s financial protection a more convenient affair for them with an online life insurance plan with regular income option.
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