We spend most of our lives working to provide for our loved ones. We plan for our future needs carefully and make investments to achieve life goals. Understandably, it can get challenging to manage your finances while preparing for the future at the same time. There is a way to create a sound financial support system using a term plan calculator to buy term insurance.
If you have family members depending on your income source, you can use the term plan calculator to your advantage. It helps estimate the amount of life cover your family requires to maintain their standard of living in your absence.
When you insure your life against unpredictable circumstances, the sum assured is a key aspect to focus on. With the help of a term plan calculator, you can ensure that the sum assured is adequate for your family.
Apart from using the term plan calculator for the sum assured, you must also focus on the payout options. The common understanding of how term insurance works is that it offers a death benefit payout to the deceased’s family. However, not many people know that you can convert the payout into an income source for your family.
Here’s how it works.
Monthly Income Variant
In general, insurance providers offer two methods of payout for term insurance benefits. This includes a lump sum payout and a monthly income payout option. When you are purchasing a policy with the help of a term plan calculator, it helps keep in mind that benefits can be paid out in different ways.
With the monthly income variant, the family of the insured can receive the money at regular intervals. This is especially useful for families where the insured person is the sole source of income. In the unfortunate event of the insured person’s demise, the family can use the financial compensation to meet day to day expenses.
The term plan calculator gives you an idea of the amount you should choose for your family to help them manage their regular expenses. This includes paying for monthly housing rent, paying loan installments, covering utility bills, children’s school fees, etc.
Under this form of payout, the beneficiary receives the monthly income in the following ways:
- A larger portion of the sum assured (50-70%) is paid to the beneficiary immediately after the insured person’s demise. The remaining portion of the sum assured is offered as monthly income to cover their regular cost of living.
- Another option is where the beneficiary can receive an equal portion of the sum assured at once and as monthly income.
- There is an alternative that offers an increase in the monthly income payout by a certain percentage each year. This option is useful as it covers the impact of inflation.
The monthly payments can last for an extended period, say 10 to 15 years, depending on the policyholder’s preference. Therefore, the evaluation of the sum assured with a term plan calculator should be done with a clear objective in mind. If you wish to create an income source for your family, you can use the term plan calculator to estimate the cover accordingly.
In general, it is advisable to consider the number of dependents, lifestyle, affordability, investment needs to use the term plan calculator appropriately.
There are other benefits to selecting the monthly income variant as well. Let’s discuss them to help you with selecting a suitable payout option.
- Maintaining the Lifestyle
Planning for a future when you are no longer with your family is unpleasant but necessary. Insurance plans are increasingly becoming the choice for financial protection. By 2020, the overall market for life insurance was projected to be $280 bn.
Term insurance gives you the assurance that they will remain financially independent during challenging times. While the future events are out of your hands, you can increase the accuracy of your financial plans with a term plan calculator.
A term plan calculator allows you to be precise in providing for your family, even in your absence. By choosing the monthly income variant for payout, you can make sure that they continue their standard of living.
- Reduced Financial Burden
When a family is dealing with the loss of a loved one, they may not pay attention to the financial worries ahead. However, the presence of a financial support system is reassuring when they need it the most.
The key purpose of using a term plan premium calculator is to determine the coverage amount for your family. Using the term plan calculator effectively, you can ensure that they will not be faced with immense financial burdens.
- Better Money Management
If you compare the monthly income variant with a lump-sum payout option, both have specific advantages. The lump-sum payout can be favorable to manage sizeable expenses such as college education, loan repayments, etc.
However, families with limited financial knowledge may not use the amount appropriately. Instead of an immediate payout, they can live a comfortable life for a longer period with a monthly income variant.
These are some of the factors that you must consider when using the term plan calculator to put together a financial plan for their future. Therefore, make sure you think long-term and understand the benefits well before purchasing a plan.
Source: https://www.investindia.gov.in/team-india-blogs/overview-insurance-industry-india