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How to ensure a regular income stream for your family?

dateKnowledge Centre Team dateMarch 26, 2021 views131 Views
How to ensure a regular income stream for your family?

As the primary caretaker of the family’s income, you also bear the responsibility of ensuring the continuity of this income to your family. Expecting your dependents to take up the reins of your financial acumen right after your sudden demise could be unrealistic.

Even with a good passive income, your dependents will need time and support to come to terms with the new reality. The usual misfortune families suffer after the sudden demise of the breadwinner is the enormity of long-term financial decisions. Suddenly, they come to face the responsibilities you had so efficiently carried. Term insurance plans generally offer the flexibility to choose the way you want the benefits to be paid out. One such option is monthly income or part lump-sum part monthly income payout of benefits. Choosing a regular payout option will create a monthly income stream for your family.

As a wise caretaker, you would want your family’s regular income to be a safe stream. So how do you ensure that the monthly income stream keeps on trickling?

How Regular Payout Option in a Term Plan will Benefit you?

You could do away with your family’s financial security after your death, by simply offering a huge sum of money using a large term insurance cover. However, your family will have numerous big decisions to make, and you might as well be leaving them without answers:

  • Pay-off ongoing debts
  • Save for children’s long-term life goals
  • Use the money to meet their regular living costs

The third part is incredibly difficult as it’s not a one-time decision. You have a huge sum of money at your disposal and your needs are continuous. Use too little out of the pool and your present lifestyle will suffer, use too much of it and you run the risk of financial distress in the later years.

But, if you can fix the regular income for your family beforehand with the same term insurance plan, you would make their life much less miserable after you.

Thus, regular income is an important factor in a family’s survival. Even when you have huge wealth your family can use, you would want a regular income for the family’s daily needs. Without a regular income, it’s not only difficult to set up a monthly budget, but your needs are likely to drain your wealth sooner than later.

Having a large sum of money seems to make life a lot easier, even if only on paper. However, for most of us, regular income is a result of employment or business activity, and a large pool of funds is a result of good income for a long time.

The profession, employment or business is often the primary forte of one family member, also considered the primary breadwinner for the family. So, if, you are this primary breadwinner for your family, how do you ensure that the family has a source of income even when you are not there?

Buy a Term Life Insurance to Protect your Loved Ones

One of the ways is to buying a term insurance cover for the family. In case of your untimely death, your family can receive a large sum of money. They can use this money to generate a monthly income as well as to meet their future financial goals.

However, the two challenges of investing the money in a safe instrument and tax will remain. Also, your dependents must be prudent about dividing the large sum for income and future goals.

Buying Term Life Insurance with Regular Income Option

Term insurance with a regular income option means you can decide to pay the benefit amount to your family as a monthly income. This is opposed to the usual lump sum only pay-out from term insurance policies.

With this option, your family can receive two different pools of money:

  • Lump-sum amount to help pay off any debts and invest in the big future goals
  • Another part is converted to a monthly income for the remaining policy tenure

With this option, you can completely eliminate the need for your dependents to invest the insurance proceeds for household needs. Instead, they can focus on their future and living debt-free.

Does a Term Plan Provide Inflation-Adjusted & Tax-Free Benefit at Maturity?

Life insurers are renowned for their long-term safe investment options. After the sovereign government, life insurance companies are the only asset managers promising a guaranteed return on a 20-year investment plan.

Also, since this income is a direct pay-out from a life insurance policy, it is not taxable. You can choose to make this income grow over the years by a percentage of the initial pay-out.

This way the income keeps growing for the family and they can maintain their lifestyle in the long run.

For example, the iSelect Star term plan from Canara HSBC Oriental Bank of Commerce Life Insurance offers a 10% p.a. growth to the family’s monthly income. So, if your family starts to receive an income of Rs. 50,000 per month, it will keep growing by Rs. 5000 every year.

Thus, if you are salaried or have a business, the simplest way to ensure the long-term safety of your income to your family is with a regular income option of term insurance.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to Ask while Buying a Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
  9. 9. Does the term insurance plan have a cash value if you decide to cancel the policy?
  10. 10. Under what circumstances can a term insurance plan be cancelled?
  11. 11. Can I pay the premiums online or make electronic payments?
  12. 12. What will happen to the term plan if the life assured starts smoking after purchasing the policy?
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