How to Select Term Plan Benefits for a Stress-Free Claim?

Term insurance is a pure protection plan and with anything that promises to serve a single purpose, you would expect it to be great at it. Fortunately, you can turn your term insurance plan into a great protection plan for your family. Not only that, you can also ensure that your family has a smooth journey before and after a claim settlement.

The Income Challenge

Richa felt lucky that her husband Sandeep ensured good financial protection for her and their children. He had bought term life cover right after their marriage. His untimely death had been really unfortunate for the young family. But with the help of the term insurance benefit, Richa can ensure a good future for the children.

The insurer paid the entire benefit amount in her account, and suddenly, also for the first time in her life, Richa has a little over Rs 1 crore in her bank account.

Next challenge, using this money to:

• Run the household expenses for the rest of her life (40 – 45 years)
• Fund children’s school education & related expenses
• Invest the money in children’s higher education
• Invest the money in children’s marriage goals
• Minimize the tax liabilities for all the above

Richa’s choices suddenly looked difficult with so many goals to look for and a huge sum of money in the account. Even though the claim settlement had been smooth for Richa, she now feels anxious about using the money diligently enough to meet most of her goals.

Settlement is only the first step leading to a series of more difficult questions, such as:

• How and how much to invest for starting a monthly income for the family?
• Which goals to invest for and where?
• How to take care of the old age expenses for self?

How to Overcome the Income Challenge?

Income challenge is easy to overcome if you carefully select the benefit pay-out option at the time of buying the term plan. Online term plans such as Canara HSBC Life iSelect Smart360 Term Plan, give you the option to choose a benefit pay-out mode while applying for the cover.

The best way to ensure that the money from your term insurance claim makes life easier for the family is to divide the sum assured into lump sum and income.

For example, if you have selected a sum assured of Rs. 1 crore, you can divide this for payment as 50% in a lump sum and 50% of it converted to monthly income. Thus, your family can receive about Rs. 50,000 a month for the remaining policy tenure.

So, your spouse can use the lump sum amount received at the time of claim to invest for her post-retirement income as well. Following are a few more scenarios where the lump sum money will be useful:

• Pay-off any short or long-term debt
• Invest towards children’s life goals
• Home modifications in case of permanent disabilities of policyholder
• Invest towards retirement income

What if You Have Added Covers?

You can add a few necessary covers to your term insurance plan over the basic death benefit. These other benefits should also have the division of lump sum and regular income. As your income will take a hit if you are hospitalized after an accident or for treatment of a life-threatening disease.

Therefore, your family will need a regular cash flow to look after the household income and lumpsum for the treatment expenses.

Check the Inflation:

With the regular income option, you can also give your family an edge over inflation. Although the common income option is a level income paid throughout, you can choose for a growing income.

When you choose the growing income option, the monthly pay-out will increase every year by a fixed percentage.

For example, in the example above, the regular income from 50% of Rs. 1 crore claim benefits could grow at 5% per year. The first year’s monthly pay-out will be slightly lower at about Rs. 41,000 per month and will increase to Rs. 43,000 in the second year.

Check for Claim Guarantee:

All the lump sum and income options are good, but the greatest factor influencing the claim experience is ‘time’. The time it takes for the insurer to settle the claim is filled with anxiety and expectation for the family depending on it.

Thus, just one more step to ensure that your family can have a faster claim settlement would go a long way for them. Claim guarantee provides the conditions under which the insurer can settle a life insurance claim within a very short period of time.

For example, Canara HCBC Life 1 Day claim guarantee offers to settle death claims up to Rs. 1 crore within a day. Provided the policy meets a few simple conditions like running continuously for at least three years.

So, it’s not only a large sum of money which will make life easier for your family. In fact, a sudden windfall of large amounts can very easily become a challenge. It is how intimately the life insurance benefit covers the needs of your family that will define their claim experience.