Life insurance's got a new garb: Income protection term plans

Our income is more than a monthly recurrence of being remunerated; it is a lifeline that extends to us and our dear ones in living our dreams and achieving our goals. We work tirelessly for this continuous stream of income that keeps our families financially secure. But what if an unfortunate event strikes and it gets wiped away? Imagine the kind of effect it could have on the children’s education, our retirement, our parents’ healthcare needs and so on. 

To safeguard against such situations, term insurance is a non-negotiable financial safety net that everyone should opt for. Traditionally, term insurance plans have provided the lump sum payment to the deceased’s family in case of their untimely demise. The family could then use this corpus to meet their daily needs, and to achieve their life goals. While the family does get financial security, they could have trouble managing or investing such a sizable amount since they might or might not know how to go about it. There are high chances of overspending or mismanagement of fund if the family is unable to make the right decisions. 

Now, a revolutionary shift has taken place taking the concept of term insurance miles ahead. Enter the new category of life insurance — the Income Protection Term Plans.

What makes these plans stand out?

Income protection term plans is an innovative category in term insurance that is designed with a simple yet profound concept: rather than just a one-time payout, it provides a steady income stream to the family in the unfortunate event of the policyholder’s demise. Imagine it as a financial security blanket for your loved ones, ensuring that they receive a consistent flow of income to maintain their lifestyle, pay bills, cover education expenses and keep dreams alive, even in your absence.

What sets income protection term plans apart is that they are designed specifically to mimic your salary and ensure your family doesn’t feel the impact of losing the household’s primary income. By receiving a regular income, families can manage their finances more effectively, plan monthly expenses, and maintain their standard of living without disruptions. These plans are especially suited for salaried individuals. 

The plan also comes with the variant of inflation-adjusted payouts that increase the income at an annual rate of 5%, which starts from the day you buy the plan (capped to 1.5 times of the income payout opted). 

Not only this, this new category also offers plans with add-ons that are specifically designed to take care of aging parents. By opting for such add-ons with the base plan, the parents will be entitled to get a monthly income whereas lumpsum amount will be paid immediately to the nominee on policyholder’s untimely death. This ensures that your parents stay covered financially and not dependent on anyone even in your absence.

Benefits 

Lifetime income for your family: First and foremost, the biggest and the most striking feature of Income Protection Term Plans is the promise of an income stream. As long as your nominees live, they will keep receiving regular payouts which will give them a sense of financial continuity. This will also go a long way to alleviate the stress associated with managing a large sum all at once. That’s because the structured payouts under these schemes make sure that the deceased’s family is not burdened with the overwhelming task of managing a large corpus, which can sometimes lead to financial mismanagement. Instead, they receive a consistent income that can replicate the comfort of the monthly salary of the policyholder.

Inflation-adjusted income: The best part of these plans is that the income that your family receives would not remain static. It will increase over time to counter the impact of inflation. After all, inflation eats away at the purchasing power of money. Hence the income you receive today may not be enough to cover your expenses 5 or 10 years later. Keeping that in mind, the revolutionary Income Protection Term Plans have the feature of adjusting the payouts for inflation by a compounding rate of around 5 per cent annually, capped to 1.5 times of the income payout opted. 

Tax-free payouts: Like traditional term plans, the Income Protection Term Plans also come with dual tax benefits. Not only can one claim income tax deductions under Section 80C of the Income Tax Act on the premium paid, the income provided under these plans is also tax-free.

Moreover, these plans are reasonably priced, especially considering the immense value that they offer. For instance, for a plan that provides an annual income of Rs 10 lakh (tax-free) to a 30-year old individual, the premium comes to only Rs 1,517 per month. In case of the immediate demise of the policyholder, the nominee will receive Rs 10 lakh every year. For a period of 40 years, this amounts to a total payout of Rs 4 crore. However, the premium for this would come to what a policyholder would normally pay for a Rs 1.2 crore regular term plan.

Since these are newly-launched plans, insurers are also offering special discounts for salaried individuals, women policyholders, and even for purchasing the policy online, making securing your family’s future both affordable and accessible. 

The writer is Head, Term Insurance, Policybazaar.com