Few features in your Insurance plan might look very attractive from the frontend but when you try to evaluate the right nuances based upon numbers things may turn quite different. Similar rules apply to some new options launched by many insurance providers with their term insurance offerings. One of the many options is the Staggered payment option which insurance companies have started offering in last few years.
When you consider a regular term plan, in case of death of the policyholder the nominee get the total sum assured as claim in one go but when you can consider term insurance plans with staggered option the sum assured is not paid to nominee at one go rather it is divided into number of installments over a period of years. In case of staggered options also there are two sub options one with monthly payments for a period of years and other differential monthly payments. Let’s understand by a case
From the simplification perspective the staggered option might look a better option because if you family members are not so financially literate then they can’t take the benefits of the lump sum payout by investing the amount of get better returns. In a case like this the staggered format can work better for them so that at least the policy can take care of the family’s monthly expenses.
Read Related Article: Birla Sun Life Online Term Insurance: Birla Sun Life Easy Protect
On the other hand if you feel your family is smart enough to handle lump sum payout then we should evaluate the option based upon the internal rate of return of the any of the option selected. If you follow the IRR mechanism to evaluate the plan you will find the staggered is not much attractive to look into. As in case of staggered plans the average IRR offered by any of the online term insurance plans is less than 7% and which is like post tax returns of regular fixed deposits which is makes it more unattractive to invest.
So while buy online term insurance plans with any of the options we should try and understand the nuances based on the criteria mentioned above. Though form the security reason the staggered option might look effective for the family to handle the money easily. They don’t need to worry about investing the money further to take care of their regular financial needs. The Staggered option though provides your nominee with much easier planned approach and you don’t need to worry about how things would be taken care after your death but from the returns perspective it quite not acceptable. A lower returns of less than 7% is not at all attractive and it will not to beat the inflation cost in future. The best advise in this case is understand your requirement by looking into the nuances of each option more effectively so that when you are not there yours family’s financial health is taken care of in the best possible way
Original Source From- My Insurance Bazaar
Original Published URL-http://www.myinsurancebazaar.com/life-insurance/article/Which-Is-A-Better-Tem-Insurance-Plans-Option?--Lumpsump-Or-Staggered-Payout
When you consider a regular term plan, in case of death of the policyholder the nominee get the total sum assured as claim in one go but when you can consider term insurance plans with staggered option the sum assured is not paid to nominee at one go rather it is divided into number of installments over a period of years. In case of staggered options also there are two sub options one with monthly payments for a period of years and other differential monthly payments. Let’s understand by a case
| Plan details | Lump sum assured one time payout | Payout in case of Staggered option | |
| Plan A-Bought at the age of 30 , who is a non smoker and has policy term of 30 years | Rs.1 Crore | Income option | Rs.83,333 per month for the next 10 years |
| Average Premium paid: Rs.10,000 in case of Lump sum payout | Income plus option | Rs.83,333 per month for the 1st year and then increase by 10% annually calculated on simple interest | |
From the simplification perspective the staggered option might look a better option because if you family members are not so financially literate then they can’t take the benefits of the lump sum payout by investing the amount of get better returns. In a case like this the staggered format can work better for them so that at least the policy can take care of the family’s monthly expenses.
Read Related Article: Birla Sun Life Online Term Insurance: Birla Sun Life Easy Protect
On the other hand if you feel your family is smart enough to handle lump sum payout then we should evaluate the option based upon the internal rate of return of the any of the option selected. If you follow the IRR mechanism to evaluate the plan you will find the staggered is not much attractive to look into. As in case of staggered plans the average IRR offered by any of the online term insurance plans is less than 7% and which is like post tax returns of regular fixed deposits which is makes it more unattractive to invest.
So while buy online term insurance plans with any of the options we should try and understand the nuances based on the criteria mentioned above. Though form the security reason the staggered option might look effective for the family to handle the money easily. They don’t need to worry about investing the money further to take care of their regular financial needs. The Staggered option though provides your nominee with much easier planned approach and you don’t need to worry about how things would be taken care after your death but from the returns perspective it quite not acceptable. A lower returns of less than 7% is not at all attractive and it will not to beat the inflation cost in future. The best advise in this case is understand your requirement by looking into the nuances of each option more effectively so that when you are not there yours family’s financial health is taken care of in the best possible way
Original Source From- My Insurance Bazaar
Original Published URL-http://www.myinsurancebazaar.com/life-insurance/article/Which-Is-A-Better-Tem-Insurance-Plans-Option?--Lumpsump-Or-Staggered-Payout
