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Product Crack | Traditional life insurance policy

Product Crack | Traditional life insurance policy
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First Published: Wed, Jul 06 2011. 09 30 PM IST
Updated: Wed, Jul 06 2011. 09 30 PM IST
Name of the product
Bharti AXA Life Insurance Co. Ltd’s Monthly Income Plan.
What is it?
It is a traditional policy that guarantees a monthly income for a certain period during the policy term.
What you get?
Depending on the monthly income you want, you pay a premium for a limited term. Once you have paid all due premiums, you get a monthly income for the rest of the term.
The policy also gives a reversionary bonus depending on the performance of the insurance fund every year. This is calculated as a percentage of the total monthly income chosen by you on a simple interest basis and is paid on maturity. In case of the policyholder’s death, the reversionary bonus accumulated till then is paid upfront as a lump sum. Subsequently, the monthly payout starts immediately.For example, in a policy with a term of 15 years, the premium paying term is seven years and you get monthly income for eight years. However, if the insured person dies in the third year, the monthly payouts will start immediately for the next eight years only.
What’s special
If you choose a term of 15 years and monthly income of at least Rs 5,000, you get a discount of up to 2% on your premium. However, over 25 years and 30 years and for a monthly income of at least Rs 3,000, the premium discount is up to 4%. The exact discount will depend on your age and gender.
What’s the cost
Since it is a traditional plan, it will invest largely in debt products. The costs are not mentioned but one can get a handle on costs and performance by looking at the illustration. According to the brochure, for a monthly income of Rs 3,000 for eight years, a 30-year-old needs to pay an annual premium of Rs 33,324 for seven years over a 15-year term. This comes to a return of just 2.69% that is guaranteed. However, if you build in the non-guaranteed benefits or the reversionary bonus, then assuming a gross return of 6%, your net return comes to 3.96%; on a 10% gross return, the net return comes to 6.62%. These are two rates of return that the regulator has permitted for illustrative purposes only.
Mint Money take
This is an expensive policy and a poor investment product. It won’t help your dependants tide over any immediate financial crunch in case of your death since it does not give a lump sum. If you are looking for a stream of income, the guaranteed return of 2.69% is poor. You can do better buying a term plan and investing in fixed deposits or Senior Citizen Savings’ Scheme if you are a senior citizen.
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First Published: Wed, Jul 06 2011. 09 30 PM IST