A pure term policy pays the death benefit to the beneficiary in case of death of the policyholder during policy term. On survival, she does not get any maturity benefit. The Aditya Birla Sun Life Insurance Co. Ltd’s Income Shield Plan is a term insurance policy that breaks the death benefit into periodic monthly income benefits with an option to increase the periodic income every year. It also includes waiver of premium benefit. Let’s understand this plan in detail.
You need to decide the monthly income, premium term, policy term and income benefit term or the period during which you want the annual income for the beneficiary. Then, depending on your age, the policy will calculate the annual premium and the sum assured. There are four ways to tailor the death benefit.
Under the basic version, the death benefit is staggered in equal monthly instalments throughout the income benefit term. This monthly income will be 1.25% of the sum assured. The second option will increase the monthly income 5% every year, on simple interest basis. For example, if the monthly income is Rs100 then next year it will be Rs105, then Rs110 and so on. Under the third option, if the policyholder is diagnosed with a critical illness—the policy covers 14 critical illnesses—or has total permanent disability, the future premiums will be waived. The policy will continue as it is and subsequently if the policyholder dies, the beneficiary will get the level of monthly income as explained under the base plan. In the fourth version, the policy will waive future premiums on critical illness or total permanent disability, but subsequently on death of the policyholder the income benefit to the beneficiary will increase by 5% on a simple interest basis.
Remember, premiums will vary by the option you choose. Even under the same option, if you choose a longer income benefit then you will need to pay extra premium. “This plan only offers monthly income to the beneficiary because often the nominees are not so financially savvy. But in addition to giving monthly income benefit, it also takes care of inflationary pressures and covers 14 critical illnesses and permanent total disability," said Anil Singh, chief actuarial officer, Aditya Birla Sun Life. “The other advantage is that unlike other plans that start with a minimum sum assured of Rs50 lakh, this plan starts with as little as Rs5 lakh—covering a much wider set of people," he added.
For a woman, the year in which she delivers a baby, the policy will waive the premium for that 1 year. After the 1 year waiver, the premiums are to be paid when due. This benefit is available only once.
Suppose a 35-year-old person buys this plan for a term of 25 years and for a monthly income of Rs1 lakh for a period of 15 years; the monthly income of Rs1 lakh will translate into a sum assured of Rs80 lakh. The annual premium in this plan will come to Rs15,961. However the total death benefit pay-out will be Rs1.8 crore.
Term plans of late have seen a lot of innovations and there are many plans that break down the sum assured into periodic payments. What we like is that it offers customers the choice to either keep it simple or nuance the pay-outs. The waiver of premium benefit is good, as a critical illness or a permanent total disability can cause financial stress to the policyholder. However, do a comparison with other plans in the market. “Income benefit option is always good in a term plan because it prevents a lump sum insurance payment from being misused. Even the waiver of premium helps," said Suresh Sadagopan, a Mumbai-based financial planner. You could also consider plans that not only offer a waiver of premium but also break the sum assured down into a lump sum payment that can take care of immediate needs, and the rest as monthly income benefits.