This is a pure online term plan that only charges you for 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?
There are three ways in which the sum assured or insurance benefit is tailored in this plan. The first is a lump sum payment, i.e., the sum assured is chosen as a lump sum payment. So, if the policyholder dies during the policy term, the insurer will pay the sum assured in full and the policy will terminate. In the second option, you choose a monthly income payable to your beneficiary. This monthly income kicks in upon death of the policyholder, and is paid till 60 years of age of the policyholder or for 120 months, whichever is higher. For example, if the policyholder dies at 40 years of age, the policy in this case will pay the monthly income for 20 years. If the policyholder dies at 55, the policy will pay the monthly income for 10 years (120 months). This option works like an income replacement plan and the nominee has the option of taking all the monthly payments as a lump sum at a discounted rate of 6.5% at the time of making a claim and not later. In the third option, the monthly income payable increases by 10% every year and even after death of the policyholder, the inflated monthly income continues to increase by 10% every year. Again, the nominee can go for a lump sum payment. The fourth option is to create your own plan, combining lump sum and income replacement options. You can also choose a policy term for these options separately.
HOW DOES IT WORK?
Let us say a 35-year-old male buys this policy for a term of 25 years and sum assured of Rs.1 crore. The premium will beRs.9,726. And if he were to opt for a lump sum payment of Rs.1 crore and an increasing monthly income of Rs.1 lakh, the premium will come to Rs.39,159.
MINT MONEY TAKE
In an income replacement plan, if death occurs closer to the end of the policy term, the sum total of benefits will reduce because the number of total payouts will decrease. So pure income replacement plans may appear cheaper than a plan that offers monthly income for a fixed number of years. The advantage here is that it guarantees a monthly income for 10 years at least.
To compare the premium, we looked at the lump sum option and found the rates of this plan to be very competitive. Comparing premiums in an income replacement plan is more complicated as you need look at the present value of all payouts. Mint doesn’t recommend income replacement plans as your first term insurance policy unless you have a healthy financial life, i.e., your dependants don’t need a fixed payout, but only income replacement. As a supplement to a basic term plan, income replacement works well. You can go for the lump sum option and top it up with an income replacement plan.