Which Type of Term Insurance Payout Option Should You Choose?

Term insurance plans are one of the most popular life insurance policies in the market today, as they offer a high sum assured at an economical premium. While investing in a term plan, opt for a substantial life cover that can help your family members to live a financially independent life even after you are no longer around.

No one thinks much about the payout option while buying term insurance plans. However, it is an important aspect. You need to decide on the payout alternative based on your family’s financial condition. Therefore, it is necessary to consider your liabilities, short-term goals, and long-term financial aspirations. If you are skeptical about which form of payout option to finalize, here are the different types to help you make an informed decision.

  1. Lump-sum payout

It is the most common option that people consider. Here, your nominee will receive the death benefit as a one-time payment. This payout method has certain pros and cons. For instance, this option is ideal if your family needs to repay your debt or fulfill any financial goal that requires a hefty sum. However, usually, people face a challenge in managing such a huge amount. They may even use the money to buy irrelevant things that can hamper the family’s monetary objectives. So, if you feel that your family has good financial acumen and can invest the funds wisely, you can go for the lump-sum payout option. However, if you are not confident about your family using a large sum properly, do not select this choice. Consider the advantages and disadvantages of lump-sum payout and make a wise decision.

  1. Staggered payout

You can consider this option if you believe that your family will be unable to handle a huge sum efficiently. In such a case, the nominee of your term insurance policy will receive a part of the death benefit in a lump sum; he or she will get the balance amount in monthly installments for a maximum duration of 15 years. Here, you have the option of selecting a suitable tenure, wherein your loved ones will receive the money in the form of monthly payouts. This option is ideal if you have elderly parents and require a regular flow of income to meet their monetary needs. You can opt for a fixed monthly payout option or an increasing monthly payout option based on your family’s requirements. Let us understand both the choices:

  • Fixed payouts every month: Here, your nominee will receive 50 to 60% of the sum assured as a lump sum and the outstanding amount in monthly installments. Additionally, in some term plans, your family may receive a 100% sum assured upon your untimely absence along with a fixed sum every month for the next 10-15 years. This option can be beneficial for those who need a huge sum to clear the liabilities as well as obtain a steady income. For instance, this option can prove useful in funding goals like buying a new house and financing children’s education. It can also cover daily household expenses.


  • Increasing payouts every month: Here, the nominee of your term insurance policy will receive a part of the life cover as a lump sum and get the remaining amount in monthly payouts. In this alternative, the annual increment can be between 10 to 20%, which can help your family cope with the rising inflation rate.

Which option to choose

Both lump sum and staggered payout options can help your family to meet their financial needs. However, selecting a suitable alternative depends on your preference. If your dear ones do not have adequate financial know-how, it is recommended to pick the staggered payout option. However, if they are smart in money management, you can get online term plan with the lump sum payout facility.

What do you think?

Written by Michael Curry

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