Wednesday, August 19, 2015
Product crack: Aegon Religare iIncome Insurance Plan
Policy can be a supplement to existing insurance, or for those who have enough assets but want income replacement
This is an online-only pure term plan that charges you just for the insurance. Since it doesn’t have an investment component, you don’t get any money back at the end of the policy term.
WHAT DO YOU GET?
The policy term is 60 minus your age. The premium depends on factors such as your age and monthly post-tax income. Every year the insurer will inflate this monthly income by 5% compounded till policyholder turns 59. So, if your monthly income is, say, Rs.1 lakh, it will become Rs.1.05 lakh for the next year. This is what the insurer promises to pay the beneficiary on your death. Subsequently, monthly income continues to increase by 5%a year. The death benefit is paid as a lump sum (equal to 12 times the inflated monthly income) and as monthly income (which continues to increase by 5% every year throughout the policy term). So, if the policyholder dies, say, in the second year, nominee would get Rs.12.6 lakh immediately as lump sum, and Rs.1.05 lakh from the next month every month. Next year, this will increase by 5% to around Rs.1.10 lakh. Monthly income is paid till policyholder would have turned 60, or for five years, whichever is higher. So, if a policyholder dies at 58 years, nominee will get a monthly benefit not for the next two years (policy terminates at 60 years) but for five years.
It comes with an inbuilt partial and permanent disability benefit, which entitles the policyholder to 25% or 50% of the inflated monthly income every month, again till 60 years of age or five years, whichever is more. Additionally, all future premiums are waived off. If the policyholder dies during the policy term, the disability benefit stops and term insurance kicks in. Keep in mind that the maximum monthly income payable under this benefit is Rs.50,000.
HOW DOES IT WORK?
Say, a 35-year-old man who gets a monthly salary of Rs.1 lakh buys this plan. The policy term for him would be 25 years and annual premium Rs.33,448. The sum of total death benefits if the policyholder dies by the end of first year will be around Rs.5.72 crore; if he dies at the end of the 10th year, it will be about Rs.4.39 crore. This is an income replacement plan, which is why if death occurs closer to the end of the policy term, total benefits reduce as the number of total payouts reduce.
We compared the premium in this plan with that of other term plans that pay fixed lump sum with increasing monthly benefit for 10 years. This plan is much cheaper than others if death occurs during the initial years; but in the later years, it’s not as cost effective.
MINT MONEY TAKE
Three things to note. One, the plan doesn’t insure a higher income than your current one. Two, the increase is of 5% while your real income may grow by more. Three, this plan offers higher benefits in the initial years for the price you pay. The insurer is able to stagger the benefits and its liability reduces towards policy’s maturity.
As a first policy, you would be better off with a fixed benefit plan—lump sum or periodic payment plan. You could take this policy to supplement an existing insurance, or for individuals who have enough assets and are just looking for income replacement.