If you are a discerning term life policyholder, you would have ensured that you are adequately covered for. But, rarely even such policyholders have considered how the proceeds on their death would work for their financial dependents. The standard practice among policyholders is to take a policy, which pays out a death benefit, which is lump sum in nature. Nothing wrong with it, as that is the only way in which life insurance benefit has so far been transferred. However, there is a school of thought which foresees lump sum payout on death of the policyholder as a problem for the dependents. After all, not everyone has the financial acumen to handle large sums of money on their own. Says Suresh Sadagopan, Founder, Ladder7 Financial Advisories: “In many families, the income earner (usually the male) is also the person who is managing the money. In his absence, the lady may find it difficult to invest it correctly and set up an appropriate income stream.” This is an outcome that is seldom considered by the primary policyholder and is an area of opportunity that life insurers have started to explore.
The possibility of a lump sum payout causing financial havoc on his family prompted Bengalurubased Saurov Bora, a medical practitioner, to take a term insurance policy in which, in case of his death, the policy will payout his financial dependents a lump sum as well as a monthly payment. “I have a policy which pays out a lump sum and was also looking for something that would work for a regular monthly cash-flow,” he says. Evolution of consumers of life insurance is a step towards product development resulting in structuring of the death benefit into regular payouts than lump sum.
Lump sum or regular pay?