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Income Replacement Term Insurance Plans

We all strive to provide a financial security blanket for our families and loved ones, even after we are gone. Term Insurance offers financial coverage to the policyholder for a specific period or the term of the plan. In the event of the death of the policyholder during the policy term, the beneficiary gets the death benefit by the insurance company. 

Term insurance is a convenient method to provide financial security for your dependents in case of your untimely demise. You can buy term insurance for death cover and invest their savings in other avenues to meet their income requirements while they are alive. Term insurance policies promise a lump-sum amount of money to your dependents in case of your untimely death. However, if you wish to provide a monthly cash flow source to your dependents, just like an income, to support their monthly expenses, you could think of investing in Income Replacement term insurance plans.

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What are Income Replacement Term Insurance Plans?

An income-replacement-term insurance plan is a death benefit plan and an advanced version of the term insurance plan. It is a comprehensive plan that does not promise any maturity benefit. Here, the nominee would receive a percentage of the assured sum as income replacement every month. This is due to the loss of income if the policyholder passes away during the policy term. 

This sequence of monthly incomes by the insurance company continues for a fixed number of months or years until the sum assured is not exhausted. So, if you have several dependents that do not earn independently, Income replacement term insurance plans should be an appropriate choice.  You can provide low-cost financial security to them after your death to sustain their lifestyle. You can also customize the plan based on the sum assured, monthly payment payout, policy tenure, and other features, as mentioned in the policy document.

How to apply for Term Insurance?

You can compare plans online by various insurance companies that provide income replacement for the sum assured over the term if the insured individual dies during the term period.

Once you have studied and analysed the features and benefits of securing such a plan, you can easily apply online for these plans on the official website of the corresponding company. A premium calculator available on most websites will give you a quotation about the tentative amount of premiums that you need to pay. If you find the plan options good enough, you can accept the plan and make the payment online over any secured gateway.

Features of Income Replacement Term Insurance Plans

Term insurance policies come with a huge set of salient features to offer to its buyers. They are as follows:

  • Income replacement plans distribute the entire sum assured into one-time payment along with monthly compensation.
  • The total amount which the beneficiary receives is always more than the amount promised by the plan.

  • With the monthly income coming in even after your demise, your dependents need not worry about making robust investment decisions

Benefits of Income Replacement Term Insurance Plans

Here are the core benefits of income replacement term insurance policies:

  • Your family and dependents will continue to receive monthly benefits even after you are gone in regular cash flow.
  • The return on the money invested is high, even though the premiums for such kinds of plans steadily increase towards the end of the tenure.

  • These plans are cost-effective, with low premiums than their counterparts.

Comparison with other Plans

Difference between income replacement term insurance plan and a lump sum term insurance plan:

The main difference lays with the plan payouts. In case of an income replacement plan, the nominee will receive the assured sum in monthly installments. They need not have the sound financial knowledge to save and invest further as they are already getting a monthly income for a fixed time.

In terms of insurance plan (lump-sum), the nominee gets the assured sum as a final lump-sum amount. Here, they must have the sound financial knowledge to handle a large amount of cash and how to save and invest appropriately.

Things to consider while buying the Term Insurance Plan

The following are the things to consider while purchasing a term plan:

  • Coverage Amount

    This is the amount that your dependents will receive in the event of your death. According to experts, the sum assured should be 8-10 times your annual income. You can also consider various factors like your age, liabilities, monthly expenses, and the future financial requirements of the family.

  • Tenure

    You should aim to achieve life-term insurance for your entire servicing period, i.e., at least until the age of 60. The earlier in age you buy term insurance plans, the greater coverage you can hope to get in the future. You can also get lower premiums if you start early.

  • Add-on Riders

    Riders can be added to your base policy to enhance the derived benefits for protection. They come at an extra cost but can provide you with many facilities in times of need. Before purchasing any plan, make sure to study the riders available as well.

  • Right Insurance Company

    You should look for a reliable and efficient insurance provider that has carved a niche in the insurance sector, rather than just looking for someone offering lucrative, low premiums. Select companies that have a high CSR or the Claim Settlement Ratio and a high solvency ratio. They should have a market reputation and an efficient claim support network. 


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