Types Of Life Insurance Pay-Outs That Policyholders Ought To Know
There are various advantages of life insurance. But before you buy life insurance coverage, you must understand the two main kinds of payouts.
- Death benefit payouts: A life insurance cover is valid for a specific period, known as the policy term. If the policyholder passes away during the policy term, the insurer pays out the sum assured to the policyholder’s nominee. This sum is known as the death benefit.
- Maturity benefit payouts: If the policyholder survives the policy term, the life insurance plan is said to have matured. And at this juncture, most life insurance policies pay out maturity benefits to the policyholder, which generally include bonus payments and any returns from the investment made by the policyholder. However, not all life insurance plans offer maturity benefits.
Death benefits vs maturity benefits
Every life insurance policy offers Death benefits which form the core of life insurance as its sole point is to ensure that in case the sole or the main breadwinner of a family passes away, the surviving members are not financially crippled. And all life insurance plans offer this benefit. But maturity benefits are not available in all life insurance policies.
A term plan with only death benefits may be ideal for you if:
- You are primarily interested in securing your family’s future
- You want an affordable life cover
- You’re looking for additional life coverage – over and above another life insurance policy that you already have
- You already have a lot of other investments and assets for your future goals
Conversely, you will need maturity benefits if:
- You want to save up for your future life goals
- You can afford to pay higher premiums
- You want to save up for retirement
- You’re looking for more than a pure life cover
One must remember that one can also get various life insurance tax benefits (Tax benefit is subject to change in tax laws).
Types of maturity payouts
One of the many advantages of life insurance is that it gives the freedom to choose how one receives the maturity benefits like:
- Lump sum payout: The entire maturity benefit is paid as one lump sum payment
- Periodic payout: The maturity benefits are paid out in instalments for a given period
- Lump sum + periodic payout: You can receive one portion of your maturity amount as a lump sum payout, and the remaining portion is paid periodically as a source of additional or replacement income
Annuity payouts are specific to retirement plans, made after a certain number of premium payments. They can be of 2 kinds:
- Immediate annuity: Immediate annuity payouts start right after you’ve made the specified number or amount of premium payments necessary. These payments can continue for a specific period or for your lifetime.
- Deferred annuity: Deferred annuity payouts begin after a particular period. In deferred annuity plans, you need to pay the specified premium amounts first. Then, you wait for a particular predetermined period, after which you will start receiving the annuity payouts.
Life insurance plans also allow you to enhance the basic cover offered with additional riders. Depending on the kind of rider you choose, you or your nominees will also be entitled to some additional payouts. Here’s how the payouts in the most common riders work.
- Accidental death and disability rider: An additional sum is paid out to the policyholder in case of any permanent partial or total disability due to an accident. If the policyholder passes away due to an accident, the sum assured pertaining to the rider is paid out to the nominee.
- Critical illness rider: This rider offers a lump sum to the policyholder upon diagnosis with any of the critical illnesses specified in the rider.
- Surgical care rider: With this rider, policyholders get a payout to cover the costs of any specified surgeries.
- Hospital care rider: This rider offers the policyholder a daily cash benefit in case of hospitalisation. Generally, there is a minimum hospitalisation period specified. If the policyholder is hospitalised for that period or longer, the benefits under this rider are paid out.
- Waiver of premium rider: In case the policyholder suffers an accident or any illness that leaves them with a disability, or if they are diagnosed with a critical illness, it may not be possible for the policyholder to continue working and earning for their family. Under such circumstances, this rider ensures that all future premiums are waived, reducing the overall financial burden on the policyholder and their family.
That sums up the different kinds of payouts that your life insurance policy can give you, apart from the numerous annual life insurance tax benefits. Before you make your purchase, ensure that you are clear about the benefits your plan offers.
That way, you can check if the payouts will satisfy your future financial requirements.
Note: There currently exists the old tax regime with deductions and exemptions, along with the new tax regime without deductions and exemptions, but with lower slab rates. To benefit from the life insurance tax advantages, choose the correct tax regime.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.