Term insurance plans offer low cost pure insurance cover with no linkages to any investments, hence these plans are recommended over other insurance plans such as ULIPs or endowment plans. But some of the term plans now offer the option of either lump sum benefit or distributed income benefit.
While the lump sum benefit is simple where the nominees of the insured get the amount of sum assured on the death of the insured, in the case of distributed income benefit, different insurers settle the claim in different ways. Some insurers pay a specified percentage of the total sum assured to the nominees of the insured and the balance is paid in specified number of years till the sum assured is fully paid up. Other insurance companies extend the period of payment of the balance sum assured to increase the total benefit payable to the nominees. Still other insurers increase the annual payments payable by a certain percentage every year till the entire sum assured is paid.
The premium payable is understandably lower in the case of income benefit plans since the insurer does not pay the total amount in lump sum and manages the money to pay timely annual payments to the nominees.
These policies are suitable for those who may not be sure about the financial management capabilities of the nominees.