A term insurance plan has been launched in the insurance industry with the primary aim of financial security. It is the purest form of an insurance product that can protect the financial well-being of your loved ones with the right financial support. However, there are various types of term insurance plans, such as a regular term plan and an income replacement term policy for your family members. While a regular term plan can provide only a monetary payout, an income replacement term plan can allow your family to meet their expenses.
As the name suggests, an income replacement term policy can offer a fixed sum assured value every month for a specific duration to your beneficiaries. For instance, if anything happens to you during the on-going tenure, the selected nominee can be eligible to receive a monthly payout in your absence. Let’s understand the meaning of an income replacement term insurance with the help of an illustration mentioned below:
Let’s assume that you are 30 years old who has purchased an income replacement term insurance with a sum assured value of Rs. 50 Lakh. The on-going tenure of your selected term policy is 35 years. If anything happens to you at the age of 52 years, your insurer can pay Rs. 50 Lakh to your nominee for the next few years. After your nominee receives the payout, your income replacement term policy can terminate.
Under an income replacement term plan, many insurance companies can offer different variants. While the variants can differ from one insurer to another, the most common variants can be a whole-life cover, educational cover, joint cover, and so forth. Moreover, you can customize your income replacement term insurance in terms of the selection of sum assured value, policy tenure, payout method, etc.
Having an income replacement term insurance can play an essential part of your financial planning system. Let’s understand the importance of an income replacement term plan and its various term insurance benefits with the help of an example:
Let’s assume your spouse is planning of purchasing an income replacement term policy for you. Since your partner might include you as the nominee, you should know the working of an income replacement term insurance. As the nominee, you can obtain a death benefit after the demise of your spouse.
After understanding the working of an income replacement term policy from your spouse, you might have a question, ‘How should I manage an enormous sum of money that I receive from the policy?’
With your quick response, your spouse might be in a dilemma whether you should park the money into a mutual fund, fixed deposit, bank, or stock market.
Every term policy works primarily for the financial security of your family members. However, an income replacement term insurance can provide additional benefits to your loved ones during an unfortunate event such as death, loss of income, physical disability, and so forth. The monthly payouts from an income replacement term policy can ensure the financial well-being of your family in your absence. Apart from family protection, you should purchase an income replacement term policy for the following reasons mentioned below:
- As a breadwinner, you might look after the financial needs of your family. While you are alive, you might ensure all their requirements are met without fail, your family might be unable to manage financially in your absence. Under such a scenario, an income replacement can help your family members when they might struggle to sustain financially without the presence of the breadwinner.
- With a monthly payout, your nominees can meet their routine expenses, such as utility bills, groceries, rental payments, and so on. If your dependents do not have any other source of income, you should purchase an income replacement term plan for their financial well-being after your demise.
In a nutshell, an income replacement term plan can let you safeguard your family members in your absence. Therefore, compare multiple options available in the market before you purchase a final income replacement term policy for your family. It is preferred to go with an online term plan, as they have reduced charges. Moreover, consider their financial needs and choose an adequate coverage that can allow your loved ones to lead a comfortable lifestyle after your demise.