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5 Income Benefits From A Life Insurance Plan

13 June 2024

5 mins

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If you go just by the name, ‘life insurance might seem like a product that only insures your life. As in - it provides financial security to your family, in case you pass away during the policy term. However, if you dig a little deeper, you will find an array of benefits that it additionally offers, like -

It builds you a savings fund to meet major life goals,
It allows added coverage with riders,
Unit-Linked Life Insurance Plans (ULIPs) give you investment opportunities.

Another major feature of Life Insurance you might not know about is - the Income Benefit.

What is it and how does it help you? Let’s find out!

What Is An Income Benefit In Life Insurance?

It is a feature, in which, the insurer offers you financial payouts on a regular basis. These payouts act like an extra source of income for you.

The plans that offer this benefit are called Guaranteed Income plans. They give your family financial security in two ways - with a life cover (Death Benefit) and with a savings fund (Income Benefit).

How Does An Income Benefit Plan Work?

Before you buy an income benefit plan, it's important to understand how it functions and the steps involved.

## Step 1: Choosing The Customisations The first and foremost step involves customising your policy so that it is tailored to your specific requirements.

Cover Amount

Under some plans, you get a percentage of the cover amount as income benefits. This is also the amount that will be paid to your family in case you pass away during the policy’s tenure. So, the cover amount under your policy should be enough to cover both - your financial goals as well protect your family financially in your absence.

Premium Payment Term

This is the duration until which you will have to make the premium payments under the policy. You will start receiving the income benefit payouts only after the completion of this period. So, choose a premium payment term based on your financial needs and convenience.

Premium Payment Frequency

You can configure how frequently you want to make the premium payments under the policy. Generally, there are 4 premium payment options available - you can choose to pay your premiums annually, half-annually, quarterly or monthly.

Riders

Riders are additional coverage options you can add at an extra yet affordable price. They can protect you against hospitalisation or surgical expenses, and help you out financially if you suffer from a critical illness, accidental disability, etc.

Income Payout Option

You can either choose to receive only income payouts or a small lump sum along with the income payouts. Some plans also offer an Increasing Income Benefit Option. With this option, you can increase or enhance or increase the benefits you receive on a yearly basis by a specific percentage - like 5%, 10%, etc.

Income Payout Term

This is the period of time during which the insurance company will pay the income benefit under the policy. You can choose the income payout term based on your goals and needs.

Income Payout Frequency

Similar to premium payment frequency, you can also customise how frequently you want to receive the income benefit payouts. You can choose to receive them on a yearly basis, half-yearly basis, quarterly basis, monthly basis, etc.

Step 2: Evaluation And Premium Calculation

The insurance company will review your policy application after you have selected all - the cover amount, the policy period, customisation options, etc. They will decide the premium you will have to pay and issue the policy to you.

Step 3: Making Premium Payments

The premium payment period under Income Benefit Plans is generally limited. Meaning, compared to the policy duration you select, you can finish your premium payments in a limited number of years and enjoy a longer worry-free life insurance cover.

Step 4: Income Benefit

Once the premium payment term is complete and you survive it, the income payouts begin. The payouts will be given to you throughout the benefit payout period - which you will have to choose at the time of policy purchase. You can also choose how frequently you would like to receive the income benefit.

Let’s understand this better - with the help of an example.

Mahesh, a 30-year-old, buys a Guaranteed Income Plan with the following parameters -

Cover amount	20 lakhs
Premium payment term	10 years
Policy term	30 years
Income benefit payout period	From 11th policy year to 30th policy year = 20 years

In this situation, Mahesh will pay his premiums for 10 years - until he is 40 years old. Then he will start receiving the guaranteed income benefits under his policy, for the next 20 years - until he is 60 years old. As per the policy terms, he will receive 5% of the cover amount as an income benefit.

So, Income benefit payable = 5% X 20,00,000 = Rs. 1,00,000

So, Mahesh will receive Rs. 1 Lakh as the income benefit for 20 years.

In case he does not survive the policy term, his nominee will receive the cover amount of Rs. 20 Lakhs - and the policy will terminate.

Now that we know how the plans function, let’s discuss the benefits.

5 benefits Of A Guaranteed Income Plan

1.Gives you an additional source of income
When you are in your 30s or 40s, you start seeking stability in both your professional and personal lives. You get a good job or start building a business. Your family starts growing, and so do your responsibilities towards them. This is where the guaranteed payouts act like an additional source of income, to help you -

Pay for your children’s higher education and wedding.
Repay any home/car/business loans you may have taken.
Go on nice family vacations, redecorate your house, etc.

2.Lets you customise your payout frequency
You can customise how frequently you want to receive the income payouts. Based on your convenience, you can choose from the following options -

Annually
Semi-Annually
Quarterly
Monthly

This gives you the flexibility to receive the payouts when you need them the most. For instance, if you have to pay off your rent and loans, the monthly payout option would be good for you. But if you want the income to pay for your children's school fees, the semi-annual option would be better.

3.Offers you immediate benefits
Generally, savings plans give you a sum assured (Maturity Benefit) only after the policy matures - and that can take a long time. However, with Income Plans, the payouts are more immediate and regular. You receive the benefits at the end of the premium payment term - which are much shorter periods.

For example, with ABSLI Assured Income Plus, you can complete paying your premiums within 6-12 years, and thereafter enjoy the guaranteed income payouts for 20-30 years.

4.Replaces your income post-retirement
Once you retire, you surely don’t want to be dependent on your children or other family members for money. You will want to remain independent, take care of your spouse, maybe travel the world, and live a happy, healthy life.

The income payouts you receive can cater to your retirement needs so that you have a secure future - even when you’re not earning. It helps you meet your regular expenses, despite the rising inflation and the high cost of living.

5.Dual tax advantages
The premiums you pay every year are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.

The income or death benefits you or your nominee will receive, respectively, are also entirely exempt from taxation, as per Section 10(10D)** of the Income Tax Act, 1961.

Wrapping up!

As we saw, a life insurance plan offers so much more than just a life cover. In this article, we talked about the income benefits life insurance provides, and how you can receive them. In today’s age of skyrocketing living costs, an extra source of income can never hurt. We hope you analyse your needs, do your research, and choose a Guaranteed Income plan, if it suits you.