Published On : Tue, Nov 9th, 2021
Featured | By Nagpur Today Nagpur News

Term Insurance – Lump Sum Vs Staggered Payout Option


The death benefit offered to the beneficiaries can be a lump sum amount or staggered payout. A person can choose between both options while purchasing a term plan.

If you want to know more about lump sum and staggered payout options, then read this article.

One of the concerns for every individual is their family’s financial security. In order to ensure it, many purchase term insurance. A term insurance plan offers the death benefit to the insured person’s family in case he/she passes away during the tenure of the policy.

Thus, term insurance is very important for securing a family. Furthermore, the person can choose the payout option while purchasing a term insurance plan. Based on his/her choice, the death benefit will be paid out to the beneficiaries. The payout option should be selected based on the family’s financial understanding, goals, and liabilities. Primarily, there are two payout options- lump sum payout and staggered payout.

Lump Sum Payout

Lump sum payout is the most common option. When a person chooses this option, the entire death benefit is paid out in one payment. Therefore, if the policyholder dies during the tenure of the policy, then the insurer can pay the entire sum assured to the family.

It is recommended that an individual should choose this option if his/her family has a good financial understanding. This is because the lump sum amount received can be significant and can be used to make investments. Therefore, it can help the family make more money. While a part of the amount can be used to pay off the existing debts, the remaining amount can be used for regular expenses and investments.

Staggered Payout

In case a person knows that his/her family might face difficulties while managing the money, he/she should choose staggered payout. When a person selects this option, a part of the sum assured is paid as lump sum, and the remaining amount is paid in regular instalments.

Furthermore, under staggered payout option, the insurers offer various types of options, such as-

  • Part Sum Assured and Monthly Income

In this option, a part of the sum assured is paid to the beneficiary immediately after the death of the insured person. The remaining amount is paid out in monthly payments.

  • Monthly Income

Under this option, the beneficiary will receive the sum assured in monthly instalments.

  • Increasing Monthly

In this option, the monthly income increases annually by 10-20%.

  • Part Sum Assured and Increasing Monthly Income

Under this option, a part of the sum assured is paid to the beneficiary. The remaining amount is paid in monthly instalments. The instalments will be increased annually by 10-20%.

Which Option is Better?

The choice between both options depends on every individual’s requirements. He/she should understand his/her family’s needs. In case there are liabilities, it is wise to select the lump sum payout option. However, if a person wants his/her family to meet regular expenses and future goals, then the staggered payout option is better.