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Best Life Insurance Plans From Top Insurers

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Everyone wants to give a secure life to his/her loved ones, especially after his/her own death. A term called insurance is something that empowers the same thought. If we talk about the value and the importance of an insurance plan, it is a pure death benefit plan and a sure shot way to provide financial security for one’s family at a low cost.

And an income replacement term insurance plan is a comprehensive plan which can be the best fit for your family.

According to a nationwide study was held by Forbes LearnVest on Life Insurance says around 65 percent of people are not fully familiar with their life insurance plans. Which simply indicates a considerable amount as a death benefit is not enough, your family and dependents should also have knowledge about how to put that lump sum to best and effective use, failing which, they might face financial problems.

The insured might feel that an appropriate life insurance product having a large sum assured is enough for their family and dependents to accomplish key goals of life and sustain their lifestyle. But still, the fact stays on that regular expenses are needed to be met on a monthly basis, and a one-time lump sum might sometimes leave the recipient mystified about how to put in or use that money, especially when they are not aware of the financial mumbo-jumbo.

It is important to be confident and sure about choosing the right income replacement term insurance plan. Hereby the write-up PolicyX open the gateway to the facts and insights. This will obliterate all the doubts of the readers. It is important because when one has the right knowledge about term insurance plans, (s)he has the power to make things better for himself/herself and his/her family.

Deep in the dark of Income Replacement Insurance Plan?

income replacement plansThe insurance company promises to pay the nominee a percentage of sum assured every month for a fixed number of years, as the name suggests income replacement. To make it simple we can say that if the life assured passes away during the policy tenure, the nominee as mentioned in the policy document will receive a regular monthly cash flow due to the loss of the monthly income.

For instance, a thirty-two-year-old man opts for an income replacement term insurance plan with a sum assured of Rs 50 lakh. He opts the plan for 35 years as a policy period. Let’s say, the life assured passes away at the age of 52 years, his nominee – his wife, as mentioned in the policy will receive a percentage of Rs 50 lakh (sum assured) for a fixed number of years. Once the total sum assured is paid to the nominee, the policy terminates and no other payment shall be made to the nominee.

The instance mentioned above is one of the simplest examples of an income replacement term insurance plan. Another thing which is a must to know is that most of the life insurance companies offer customization of income replacement term insurance plan. The buyer can customize the plan with respect to the sum assured, policy tenure, monthly payment payout, and so on.

Income replacement plans come with an aim to rescue if the insured has a feeling that his dependent might not be able to handle or invest the lump sum payout efficiently. As mentioned before, the income replacement plans payout fraction of the benefit as a lump sum to the family after the demise of the policyholder, and also make payment of regular monthly income over a specific period, for about 10-15 years (for example).

In other words, we can say that the income replacement plans break the entire assured sum into a one-time payment, along with a continued monthly compensation. But this is not enough to make these plans interesting. The total amount received by the beneficiary or the nominee, over a period of time, is more than the sum assured mentioned in the policy.

The lump-sum amount can remain the same, as an alternative, and the family or dependents of the policyholder will be paid an additional amount every month. Even though the annual premium would rise to a certain extent, it would be of value because; the return on the money invested would be high.

The beneficiary, at that point in time, might not be in a condition to comprehend the ways and means to maximize the returns.  Income replacement life insurance products make sense for sole earning households, and where your spouse or family is not financially smart enough or is comfortable in making robust decisions about investments.

How an Income Replacement Term insurance plan helps a family

In a tough time of any unfortunate event, like an untimely demise of the life assured during the policy period, the nominee receives monthly installments. In such times these monthly installments come out as a savior to your family in the form of cash flow to maintain monthly household expenses and other financial needs. This way it somehow helps in cope up with the loss of income due to the untimely demise of the life assured.

Whether your insurance policy and you are made for each other…

To know whether the insurance policy and you are made for each other, you should read about it and understand more and more and survey the market. Firstly, one should dig deeper into his/her needs which help to align those needs with the type of term insurance plan (s)he should opt.

Secondly, before buying a policy one should decide if the income replacement term insurance plan is the right choice for his/her. And lastly, one should distinguish between the two of the most commonly available types of term insurance plans. When these three things are done correctly, the buyer will have the power of choice. The choice should be based on the right term insurance plan.

Illustration

To understand it better let us take the example of Rahul, who has recently bought an Income replacement Insurance Plan:

Rahul is a 30-year-old married man, with an a-four-year old kid.

Age

Initial Monthly Income

Policy Term

Monthly Premium

30 Years

Rs 75,000

30 Years

Rs 1,970
(including tax)

 So, if any unfortunate incident takes place in the 5th Year of the policy, under the following situation, leaving Rahul's dependents bereft of his support. 

Situation 1

From the date of his demise to the next 5 years

For the next 25 years
(Up to his 60 years of age)

Death of Insured

Rs 10.95 lakh paid immediately to his family

● Monthly benefit of Rs 91,163 paid to Rahul’s dependents

● Monthly benefit increases every year by 5 percent

 

As mentioned above, the insurance plan he has chosen ensures that Rahul’s dependents are supported financially throughout his working life. However, in the following situations, Rahul has an accident in the fifth year of the policy which hampers his ability to work and earn an income to support himself and his dependents.

Situation 2

From the date of his disability to the next five years

For the next 25 years
(Up to his 60 years of age)

Disability of insured

(Suppose Rahul met with  an accident and lost his vision)

 

 

Rahul is been paid 50 percent of his monthly income under the plan by the insurer

 

● Monthly benefit of Rs 45,582 is paid to Rahul which increases every year by five percent up to max (Rs 50,000)

● Future premiums are waived

 

In such an instance, Rahul is given 50 percent of his monthly income under the plan on a monthly basis by the insurance company, until the term of the plan ends. Moreover, depending upon the plan one chooses, the income replacement plan will also waive off the future premiums under the plan, thus enabling Rahul to look after his family in the face of such adversity.

Variants of an Income Replacement Term Plan

  • No maturity benefit to be received in any variant of the term insurance plan
  • The beneficiary or the nominee will receive the assured sum only in the case of death of the insured
  • The only difference is in the way of payment of the assured sum to the beneficiary or the nominee under the policy.
  • The nominee receives the entire sum assured in case of the demise of the policyholder, in regular term life insurance cover

This may not be the case under the other variants. The payout may be spread over a period of time. A few illustrations are:

  • The fixed monthly payout for a specific number of years – For example, Rs one crore sum assured would be paid out in monthly installments of Rs one lakh over 100 months
  • A part of the amount assured is rewarded as a lump sum and the remaining sum is remunerated on a monthly basis for a fixed number of months – For example, Rs 50 lakhs of lump sum and Rs 50, 000 are paid on a monthly basis for 100 months
  • Monthly payouts that multiply at a pre-specified rate yearly for a particular number of years – at a fixed percentage or depending upon the rate of inflation
  • There can be n number of variants as Insurance is a contract and you can frame a contract in any way.

These variants of the term plans are referred to as Income Replacement Term Insurance Plans to distinguish it from regular term insurance plans. However, there is no paradigm nomenclature, the most commonly used terms are Income Benefit Plan and Income Replacement Term Plans.

Advantages of Income Replacement Insurance Plans

  • Fit in the pocket - Unlike the regular term insurance plans, the income replacement insurance plans are not too expensive. The premium charged in these plans is the same as that of any regular term plan.
  • Enough time to plan and decide - It may not come out as a simpler task, especially for the ones who are not well aware financially, to invest their large corpus in the right channel of investment. The dependents are generally used to the idea of assimilating in their monthly expenses within a fixed amount that the wage earner of the family earns that becomes like a comfortable practice. An income replacement life insurance product makes sure that the dependents of the policyholder continue to stay in a similar comfort zone for no less than the next one or two decades after the demise of the policyholder. This gives enough time to the family of the insured to plan alternate sources of income or figure out the ways to earn income from the assets that the policyholder has left.

Limitations of the Income Replacement Insurance Plan

  • It is too easy to understand the regular Term Insurance Plans as the sum assured is paid to the beneficiary in case of the demise of the policyholder. But unlike insurance plans, the income replacement plans may not be that easy to understand.
  • Under the income replacement insurance cover, the payout is spread over several years. Therefore, it may be puzzling to understand and make a comparison between these plans as you can do for regular term plans.
  • The products of Income Replacement can be structured in several ways. For that reason, the buyer might get confused and purchase a plan that is not fully comprehensible.
  • A few of these plans come with fancy names that could confuse the buyer.

Reasons to Buy an Income Replacement Term insurance plan?

  • If you are the only bread earner in your house
  • If you know monthly cash flow would be a better way to provide financial security to your dependents that would help them to carry monthly expenses
  • If the dependents are not financially educated and competent to manage personal finance
  • If the dependents won’t be able to handle a large amount of money at a time
  • If your dependents have no knowledge of investing a large amount of money

It is highly advisable by the field experts to opt for an income replacement term insurance plan to the people who do not have any loan. But, even people with a loan can also find a variant of income replacement term insurance plan as a combination of lump sum and income replacement term insurance plan.

Are people fit for Income Replacement Term insurance plan?

To talk about it directly, we can say that an income replacement term insurance plan is a death benefit plan. There is no maturity benefit. If the life assured passes away during the policy period, the nominee would receive a percentage of assured sum every month as an income replacement due to the loss of the income.

So, one should buy an income replacement insurance plan

  • If (s)he has dependents – spouse, children, dependent parents, etc
  • If  (s)he wishes to provide financial security to your dependents at a low cost
  • If (s)he knows that it would be difficult for them to get back financially on their foot in case something happens to you
  • If (s)he knows that having a source for monthly cash flow would help them to carry out all the necessary worldly activities as the way (s)he would have provided

A variance of a lump sum and Income Replacement insurance plan

The biggest difference between a lump sum term insurance plan and an income replacement term insurance plan is the form of payouts. In a lump sum term insurance plan, the nominee receives the sum assured as a lump sum amount, that is, the total payout of sum assured at once and the policy terminates. Therefore, the beneficiary must know how to handle a large amount of cash or should have sound financial knowledge to save and invest appropriately.

And if we talk about how it differs from an income replacement plan, the nominee receives the sum assured in installments as monthly payouts which are easy to manage and helps in carrying out monthly expenses without any hindrance. In such a case, the nominee neither has to worry about handling a large amount of money nor about the monthly expenses.

Customized Income Replacement Term insurance plan

Who doesn't like to get things customized? And what would be better than an option to customize your income replacement term insurance plan? Yes, you heard it right, one can customize to best fit his/her needs. Most of the life insurance companies do offer variants of income replacement term insurance plan.

The most common alternative is a combination of lump sum and income replacement term insurance plan. When one opts for a combination of payout under the income replacement term insurance plan, the nominee receives a part of a sum assured as a lump sum payout at the time of claim, and the rest of the money is paid in monthly installments.

To Summarise

It completely depends on your particular situation and financial needs and requirements whether you call for only a regular term plan or income replacement plan or both. A financial planner with a handful of experience or a certified investment advisor can help you in planning out your insurance portfolio and figure out the exact plan and numbers. A right term insurance plan is what you must opt for. But if still any doubt persists please do not hesitate to contact us. Our team of experts will readily help you to make the right decision. Make your choice. And make the right one.

Naval Goel is the founder of PolicyX.com. He is an Associate Member of the Indian Institute of Insurance`, Pune. He has been authorized by IRDA to act as a Principal Officer of PolicyX.com Insurance Web Aggregator.
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