Benefits Of Increasing Payout Option

Everyone knows that a life insurance policy provides a fixed amount as death benefit in the form of a Sum Assured, which is payable to the nominee of the Life Assured when he meets with an untimely demise during the policy period. But what most people are unaware and ignorant of is how to ensure that this death benefit is actually benefiting his family after his demise.

Increasing Monthly Income

One way to ensure that your family is benefited the most, is by choosing increasing monthly income option. Under the increasing income option the monthly benefit will increase annually @ 5.00% per annum (compounding). Also, you have the option of choosing the payout to be made for 30/60/120/180 months.

This kind of payout option gives you adequate protection from inflation. The real value of your money would be going down every year due to inflation. Using the increasing monthly payout, you are making a provision to counter the inflation and maintain the real value of your money at a constant level.

An Example

Let’s say you’ve chosen the increasing monthly income option. After your untimely demise, your Sum Assured gets divided by the number of months for which you’ve chosen the payment to be made for. Let’s assume, in the first year, you are entitled to a claim amount of Rs.12,00,000. This will translate to a monthly income of Rs.1,00,000. The next year the yearly entitlement would become Rs.12,60,000 which is an increase of 5% p.a. over the previous year. This would again be divided by 12 months to arrive at the monthly payout. The below table would illustrate the calculations.

An increasing payout option has it’s definite advantages. Judge your needs and your financial structure and select the increasing payout option if you want to give your family a regular income that also provides protection against inflation.