What is the meaning of income benefit in life insurance?

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Before you buy a life insurance plan, you'll no doubt do a bit of research to find out how a life cover can benefit you, isn't it? Among the upsides of life insurance, you'll find many features that can truly give you a financial advantage.

Like a safety net for your future.
Or the added coverage from riders.
Or even the tax benefits that every life insurance plan offers.

Aside from these, there are also some specific benefits that certain types of life insurance policies can give you. Like the income benefit. Wondering what that is? Well, let's decode this aspect of life insurance today.

What is an income benefit in life insurance?

An income benefit is a feature that some life insurance plans come with. According to this feature, the insurance company offers financial payouts on a regular basis to the policyholder (or the nominee, as the case may be).

These payouts act like a source of income for the recipient. And the amount of income to be paid out is generally determined at the time of purchase itself, and it is calculated as a percentage of the annualized premium.

How does an income benefit work?

Before you buy a life insurance plan that offers an income benefit, it's important to understand how this works. That way, you can make a more informed decision about whether or not this is the right kind of life cover for you and your family.

So, here is a generic timeline showing you how things work in an income benefit plan.

  • Step 1: Policy purchase

    You purchase the life insurance policy offering the income benefit. These plans typically come with a limited premium payment option.
  • Step 2: Premium payment

    You pay the premiums for the limited premium payment term.
  • Step 3: Policy term

    Then, for the rest of the policy term, you need not pay any premiums.
  • Step 4: Commencement of payouts

    Once the policy term comes to an end, the insurer starts making regular income payouts to you.
  • Step 5: Payouts period

    You will continue to receive these payouts throughout the benefit payout period, which you'll have to choose at the time of purchase.

To help you understand this better, let's take the case of the ABSLI Assured Income Plus. Here are the key details about this plan.

Premium Payment Term (PPT)

Policy Term

(PPT + 1 year)

Benefit Payout Period

Option 1

6 years

7 years

20, 25 or 30 years

Option 2

8 years

9 years

20, 25 or 30 years

Option 3

12 years

13 years

20 or 25 years


As you can see from the table above, this plan gives you three options to choose from. In each case, the premium payment term is very short, while the benefit is paid out over a much longer term.

For instance, in option 1, you pay premiums for 6 years. One year later, the policy term comes to an end. And then, the benefit payout period begins. You can choose to receive your income benefit for 20, 25 or 30 years.

Types of income payouts from a life insurance plan

Depending on the type of income benefits offered, there are two different kinds of payouts that you can receive from an income benefit plan. Here's a closer look at the two of them.

  • Fixed income payouts

    As the name indicates, the income benefits paid out under fixed income plans do not change over the benefit payout period. They remain constant, at the same level. For instance, say a fixed income payout plan offers income benefits at the rate of 110% of the annualized premium for 20 years.

    So, if the annualized premium is Rs. 1 lakh, the annual income payouts will amount to Rs. 1,10,000 each year, over the 20-year period.

  • Increasing income payouts

    Here, the income increases over the benefit payout period, based on a predetermined multiplying factor. So, if you opt for this kind of a life cover, ensure that you take a good look at the amount of increasing benefits you will enjoy on a year-by-year basis.

When should you choose a life insurance plan with an income benefit?

A life insurance plan that offers income benefits can be beneficial to everybody. However, there are some specific situations where this benefit may be particularly useful. Here are some such scenarios where an income benefit can come in handy.

  • If you are the sole earning member of your family:

    An income benefit can help replace your salary after you've retired. This way, you can continue to meet your needs and your family's requirements.

  • If you have one or more dependents:

    An income benefit can help you take care of your dependents even when you are earning from a steady job, since it can supplement your regular earnings.

  • If you have EMIs to pay:

    EMIs can eat into your regular income, leaving you with little money to meet your regular needs. An income benefit plan can help compensate for this by providing you with additional income.

  • If you want to combat inflation:
    Inflation reduces the purchasing power of money. But with the added income from an income benefit plan, you can ensure that your loved ones need not compromise on their standard of living.

Conclusion

That sums up the key details of the income benefit in life insurance. Different insurers offer their own range of income benefit plans. Make sure you choose a reliable insurance partner to secure your future, so you can enjoy regular income payouts in addition to - or as a replacement for - your regular income.

Read next: TYPES OF LIFE INSURANCE PAYOUTS YOU CAN GET

Income benefits are not the only types of payouts that life insurance plans offer. There are also various other kinds of payouts that you can enjoy, depending on the plan that you purchase. Get to know the details of the different types of life insurance payouts from our blog.

Read it here

SECURE YOUR FUTURE WITH GUARANTEED INCOME BENEFITS OVER THE LONG TERM

Worried about your fast-approaching retirement? The ABSLI Assured Income Plus can help you secure your future with regular guaranteed1 income payouts for as long as 30 years!

You can rest assured that you have a dependable source of income to fall back on. And what's more - you can rely on these payouts to meet your post-retirement life goals effortlessly.

Know More

1Provided all due premiums are paid
ABSLI Assured Income Plus (UIN: 109N127V04) is a non-linked non-participating individual life insurance savings plan. GST and any other applicable taxes will be added (extra) to your premium and levied as per extant tax laws. An extra premium may be charged as per our then existing underwriting guidelines for substandard lives, smokers or people having hazardous occupations etc. For policies issued on minor life, the date of commencement of risk shall be the date of commencement of the policy. Where a policy is issued on a minor life, the policy will vest after attainment of majority of the Life Insured. Where the Life Insured (whether major or minor) and Proposer/Policyholder is different, on the death of the Proposer/Policyholder, his legal heirs, in accordance with the existing succession laws, will be considered as new Proposer/Policyholder. As there is no death benefit payable on the death of the Proposer/Policyholder, the policy status does not change, and the policy continues.
ADV/11/21-22/1498

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