As an individual it is inherent to differ. Each individual’s insurance needs and requirements are different from that of the others. Insurance Plans are policies that talk to you individually and give you the most suitable options that can fit your requirement. All you got to do is choose the one that is best suited to your needs.
To understand it better lets take an example like the Jeevan Tarang policy for a sum assured of Rs.10 lakh and pay the premium for 15 years, insured will get back after 15 years the total premium paid plus Rs.55,000 every year till he lives. In case of death after 15 years, the insurer will pay the sum assured of Rs.10 lakh plus loyalty additions, if any.
Now for the analysis let us break it up in following steps:
Benefit count
Jeevan Tarang is a whole life, money-back policy. This is a ‘with-profits’ plan, that is the policyholder will get a simple reversionary bonus that the insurer may announce from time to time. The bonus is announced on the basis of per Rs.1000 sum assured and is payable after a specified time period.
In case of Jeevan Tarang plan, the specified period is the premium paying term and the total accumulated bonus is paid out as lump sum to the policyholder upon completion of the premium paying term.
The plan offers three premium paying terms – 10 years, 15 years and 20 years. But the life insurance coverage (equivalent to the sum assured) continues till the policyholder dies or survives 100 years of age, whichever is earlier. If the policyholder dies within the premium paying term, the sum assured is paid along with accumulated bonuses.
If the policyholder dies after the premium paying term but before attaining the age 100 years, he/she will get back the accumulated bonuses as lump sum at the end of the premium paying term plus an annual payout equivalent to 5.5% of the sum assured each year till death plus the sum assured with loyalty additions, if any, on death. The sum assured with loyalty additions is also paid to the policyholder on surviving the age of 100.
Reality check
|
Premium paying term (figure in Rs.) |
|||
| Table 1 |
10 years |
15 years |
20 years |
| Annual premium |
1,04,688 |
67,772 |
48,220 |
| Money back after premium paying term# |
6,00,000 |
9,00,000 |
12,00,000 |
| Annual payout till the policyholder attains 80 years of age |
21,45,000 |
18,70,000 |
15,95,000 |
| Death benefit* |
19,75,000 |
18,50,000 |
17,25,000 |
| # Assuming that LIC pays a reversionary bonus at the rate of 6% | |
| *Assuming that LIC pays a loyatly at the rate of 2.5% | |
| The calculations are for a 30-year-old male policyholder of Jeevan Tarang for a sum assured of Rs. 10 lakh | |
LIC had actually announced bonuses for Jeevan Tarang plan at the rate of 3.2% in 2005-06, 4.4% for 2006-07 and 2007-08 each.
We can see the different premium paying terms from the chart above.
Knowing what is best
The insurer can increase both his life insurance cover and survival benefits spending the same amount of money. Let us see, how?
He can buy a term assurance policy having a sum assured of Rs.20 lakh (double the amount he shall get under the Jeevan Tarang plan) from Aegon Religare Life Insurance Company. The annual premium rates are as follows:
| Table 2 |
10 years |
15 years |
20 years |
|
| Premium paid |
3,060 |
3,200 |
3,560 |
|
| Extra premium deposited in a bank deposit/PPF amounted to |
15,90,020 |
18,93,528 |
22,07,228 |
|
| Annual interest income from Rs.10 lakh invested in a bank fixed deposit |
32,17,500 |
28,05,000 |
23,92,500 |
|
| Return of Bank FD investment |
10,00,000 |
10,00,000 |
10,00,000 |
|
| ~ The interest rate on a 10-year bank deposit and in PPF is 8% | ||||
| ~ Calculations are for a 30-year-old male policyholder of Aegon Religare Level Term plan for a sum assured of Rs.20 lakh | ||||
This way he can ensure that if he dies during premium paying term, his family gets twice as much financial protection as in Jeevan Tarang. Insurer can then invest the extra premium (the annual premium in Jeevan Tarang policy minus the annual premium in Aegon Religare plan) in high yielding instruments.
To be on the safer side, one can invest in a bank FD or PPF. If one takes a little risk, one can consider investing in a good diversified mutual fund (to earn 8% interest or 10% compounded annual return in the long run).
To get pension-like income one can reinvest the amount after 10, 15 or 20 years, as the case maybe, in fixed-income instruments such as immediate annuity plan, bank fixed deposits, post office monthly income scheme and so on.
Depending on the instrument that you choose, the annual interest income can be Rs.80,000 or more compared with Rs.55,000 in a Jeevan Tarang plan. It is, therefore, advisable that you choose an insurance policy that offers a good balance between life cover and survival benefits.
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Tags: Health Insurance, Insurance, insurance policy, Life Insurance