The Long Read
Everything you *need to know* is right above this. Scroll down, only if you'd still like to read more (honestly, why?)
If you buy a term insurance policy, your family will receive the life cover aka insurance money if you die unexpectedly during the policy duration.
But how should they receive the term insurance payout? Before choosing that, let’s look at the various available term insurance payout options:
Lumpsum payout - The entire life cover gets paid to your nominee as a lump sum payment
Lumpsum + fixed monthly - Your nominee receives a chunk of the payout at your demise and the rest in fixed monthly instalments
Lumpsum + increasing monthly instalments - Your nominee receives a chunk of the payout at the time of your demise and the rest in monthly instalments that increase every year
Monthly income - Your nominee receives the payout as monthly income for years
The KlarifyLife Term Guide can help you choose the right payout option for your loved ones.
That depends entirely on your family’s financial requirements and money management skills. Think about your nominees. If they receive a lump sum amount of money, will they pay off their debts, be able to manage the large amount of money, or just go on a shopping spree?
Let’s look at each option closely.
If you have huge loan payments or debts to take care of or need to make a one-time large payment you can opt for a lump sum life cover payout. It’s suitable for families that can manage a large amount of money
If you have small loans to repay or need to make a one-time payment, post which your family will need fixed monthly income, choose the lumpsum + fixed monthly payments
If you have small loans to repay or need to make a one-time payment, post which your family will need monthly income that increases with inflation, choose the lumpsum + increasing monthly payments
If you feel your nominee cannot manage a large amount of money or can get easily swindled, then choose the monthly payments option
Irrespective of what payment method you opt for, ensure that your nominees are educated enough in finance so that they make good use of the life cover.
After all, with great power comes great responsibility!
Choose the monthly payment option as it will provide the cover amount in monthly payouts, enough for them to meet their monthly financial requirements.
Choose the monthly payment option as it will provide the cover amount in monthly payouts, enough for your parents to meet their monthly financial requirements.
You should choose the one-time payment option as it can help your dependents cover your home loan.
This option helps meet the rising costs of living due to inflation. It also helps in managing new and additional costs that your family may not have at the time of your demise but may start incurring at a later date. Example: College fees for your kids in the future or medical bills of your ageing parents that may increase with time.
You should consider choosing the lumpsum payout option since you have taken a huge business loan. When you are no longer alive, your nominees can use the large sum of money that they will get through this payout option to repay your business loan as soon as possible. Choosing other options may keep the loan dragging on for your family members for a longer time period.
Method 1:
Assuming that your car loan is not as big as a typical home loan, you can consider lumpsum + increasing monthly payout option. In this option, your nominees will receive a part of the payout as a large lumpsum amount and another part of the payout as smaller increasing monthly instalments. The lumpsum part can be used to repay your car loan and later on, the increasing monthly instalments can help your family with other smaller expenses.
Method 2:
If you feel your family can handle a large amount of money, you can opt for the lumpsum option. Your family can use a portion from the received lumpsum to repay your car loan.
You can consider choosing the lumpsum option. This option will give them the payout as a huge amount of money (i.e. lumpsum). They can then use it to invest or overcome any expenses.
Choose the fixed monthly instalments option. In this, your wife and son will receive a fixed amount every month that they can use to pay for their expenses.
Your term insurance payout is not taxed*, even under the new tax regime.
*Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions and tax Laws are subject to change from time to time. You are requested to seek tax advice from Chartered Accountant or personal tax advisor with respect to personal tax liabilities under the Income-Tax law
© 2021 KlarifyLife. All rights reserved.
We will send you an email as soon as our experts have an answer for you.
Don’t worry about keeping track of your query. We can send you an email to let you know when your query is answered! (And no, we won’t spam you with irrelevant stuff…)
We will let you know as soon as our experts have an answer for you.
Back
Share
Ask a question
