Here's how you can use a Term Insurance to provide Regular Monthly Income
Term insurance is one of the oldest and most popular forms of insurance not just in the UAE but all across the globe. Term insurance is an absolute must to provide financial cushioning to your loved ones in case of any uncertainty that leads to the demise of the policyholder. We work hard during the economically productive years of our life to provide a safe and secure future for our families and loved ones.
In order to accomplish the goal of safeguarding loved-ones term insurance plays a crucial role. Typically term insurance plans in the UAE offer a lump-sum amount to the nominees of the insured. The lump-sum can be used in order to pay for outstanding debts and other unexpected expenses. However, the demise of the primary breadwinner of the family might lead to financial haphazard that can disturb finances. Furthermore, once the lump-sum is exhausted it becomes extremely challenging to manage the day to day expenses. This is where the requirement of monthly payout arises.
To counter this major issue investor can opt for the option of monthly payout along with a lump-sum amount. Instead of going for a huge lump-sum amount investors can break down the total cover amount into smaller portions out of which one will be payable as a lump-sum and the remaining would be payable in the form of monthly payout for a pre-decided tenure of 10 to 15 years.
In this article, we’ll be shedding light on how can investors make use of term insurance to provide periodic payouts for their loved ones? Moreover, we’ll be covering important things to consider while buying term insurance in the UAE. Before moving on to the monthly pay-out of term insurance plans in the UAE let us understand term insurance first.
What is Term Insurance?
Term insurance is one of the most basic insurance products that provide coverage for a specified period of time i.e. term and therefore are called term insurance plans in the UAE. In case the insured passes away after the pre-decided term of the policy, no death benefit will be paid. However, if the policyholder passes away within the validity of the plan the nominees will be entitled to receive a death benefit against the policy.
Term insurance plans are less expensive in comparison to conventional life insurance plans as the death benefit is payable only in a particular scenario and therefore it is not a guaranteed pay-out for the investor in the UAE.
Two of the major reasons behind the popularity of term insurance plans is their affordability and flexibility in comparison to other traditional insurance plans and products in the UAE. The premium of term insurance plans is determined on the basis of the age, income and health status of the insurance seeker in the UAE.
Understanding Monthly-Income from Term Insurance Plans in the UAE
As mentioned earlier term insurance plans typically provide a death benefit in the form of lump-sum amount. Very often the lump-sum is not utilized wisely in accordance with long term planning that leads to exhaustion of funds quickly which eventually causes financial instability.
The correct approach to counter this issue is to go for a monthly pay-out. The insurance sector is quite dynamic and adapts to changes leading to evolution. Nowadays, more and more insurance providers are coming up with tailored plans meant to fulfill the financial requirements of an individual. Typically, as per convention insurance providers offer lump-sum amount as a death benefit. However, insurance companies these days have come up with plans offering an option of monthly-payout to effectively cater to the requirement of periodic payouts for their customers.
Insurance providers have developed term insurance plans that allow policyholders to split the death benefit into two equal portions. One of the portions would be payable right after the demise of the policyholder as a death benefit and the second portion would be payable in the form of monthly payouts.
The option of monthly payout is highly suitable for families with weak investment portfolios. Instead of a mighty lump-sum, the death benefit is disbursed over a period of 10-15 years that helps the family of the insured to manage day to day expenses efficiently without any hassle. These plans are also suitable for families with low financial literacy and knowledge.
Aggressive investors often question the need for term insurance plans since the plan provides no maturity benefit or return in case the policyholder manages to survive the period of the policy. It is extremely vital to understand that the correct utility of term insurance plans is providing risk cover and therefore they are incomparable to investment vehicles that offer maturity benefits and returns.
The regular monthly income offered by term insurance plans ensures that your loved ones do not struggle for their small day to day needs in your absence. There are multiple insurance and investment products that offer regular periodic returns, but term plans are best suited for families that rely on a single individual for their financial needs.
Investors should choose term insurance plans that offer maximum returns at the lowest cost. Opting for monthly pay-outs will ensure that the capital is being paid regularly to your nominees in your absence. Periodic pay-outs will help your dependents to make ends meet and manage their day to day expenses.
While purchasing term insurance it is important to thoroughly research the product and their features to ensure that the plan serves its purpose ideally i.e. providing financial security to your loved ones.