September 25, 2023

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When to Opt for a Staggered Payout Option in Term Insurance?

Term insurance: Should you buy term life insurance with staggered payout  option in case of death? - The Economic Times

A term insurance is a type of life insurance policy that provides a lump sum amount to a beneficiary in case the insured dies. For how simple its purpose sounds, it is considered one of the simplest types of life insurance policies. 

The death benefit amount helps the dependents secure a secure financial future. It is also beneficial for the policyholders as they can move on from the thought of the possibility of an untimely death and its effect on their family. Instead, they can now focus on making their and their family’s lives better, in the present day. However, there are times when the members of the family are not able to handle the corpus that the policyholder leaves behind. This is why funds need to be secured in order to be maximised.

Such situations can raise concern in the insurance industry as well. Due to such changes in the insurance industry, the term plan has become more complex. This has led to the development of various types of term insurance payout options. A staggered payout plan is one of those options that can be used in the event of the death of a policyholder. It can be used for the benefit of the beneficiary in the event of their demise. It helps the surviving family members plan the expenditure of the corpus based on their future needs.

Staggered payout options

The person who is supposed to receive and handle the huge corpus is known as the nominee. If the nominee is not able to handle the huge corpus, you might consider getting a term insurance plan with staggered payout options. A staggering payout option can avoid mismanagement of the money or using it unwisely. However, you have to account for the loss in interest before you opt for this option. 

Another aspect of staggered payout plans to be considered is that they allow insurance companies to hold the amount set as the death benefit for a longer time. An advantage of it is that choosing this option lowers your premium. You can calculate your premium using a term insurance calculator. These plans essentially make sure that your beneficiaries do not have all of the money in a single payment to avoid any chance of losing that money. 

Selecting the right duration 

Once you have decided to go for a staggered payout option, you have to make sure you do it right. When planning for a staggered payout plan, it is important to establish the time frame when the payouts will be made and the amount that the nominee will receive with each payment. Most of the time, it is decided on the basis of the life stage that the nominee is at. For instance, if the person is young, then it is better to go for as long of a duration as possible. It would mean that the money would last longer for them. 

Since plans with such options are not standardised, it is important to select the insurance company that suits your needs. Moreover, as there are various insurance companies in the market, it is important to select the one that suits your budget. Moreover, the choice of going for a staggered payout option should be heavily based on the requirements of you family. For example, if there is a liability of yours like a home loan or a large personal borrowing, it is better that your family receives the entire payout to pay the liability off. 

A term insurance is a must-have for every household. It can be purchased at a low cost and can be utilised for the purposes of protecting the family. It is better to analyse the family’s needs before selecting a term plan. Unless there is a need for a lump sum payout, it is suggested to go with a staggered payout plan. This helps provide your family a steady cash flow.