Tata AIA Life Insurance has launched its Guaranteed Monthly Income Plan. The company says the non-linked, non-participating life insurance plan offers guaranteed tax-free monthly income for a duration of 24 years from the date of expiry of the premium payment/policy term. So, let us find out how unique is Tata AIA’s product and read RupeeIQ’s unbiased take on the product.
Tata AIA Life Guaranteed Monthly Income Plan claims to offer the longest duration of 24 years (288 months) of assured tax-free monthly income. Buying a life insurance policy is a long-term commitment. An early termination of the policy usually involves high costs and the surrender value payable may be less than the all the premiums paid.
This product caters to life-stage financial goals like retirement needs and children’s education expenses. The policyholder has the option to choose a premium paying term/policy term of either of 5/ 8/ 12 years, which subsequently offers an income term of 10/16/24 years.
A guaranteed monthly income is payable in arrears during the Income Term, starting from the end of 1st month after the end of Policy Term.
What is Guaranteed Monthly Income
The words ‘Guaranteed Monthly Income’ mean that a percentage of total premiums paid, depending on the age at entry and the chosen policy term.
It is payable in arrears for 10, 16 and 24 years for a policy term of 5, 8 and 12 years respectively, starting from the end of the 1st month after the end of Policy Term.
Death, survival benefits
Under this Tata AIA Life product, the payable death benefit is the highest of 11 times of annualized premium, or 105% of all premiums paid, or guaranteed sum assured on maturity, or absolute amount assured to be paid on death, as the sum assured during the policy term (i.e. premium paying term), subject to policy being in force.
In case of death of the Life Insured during the income term, all the future ‘Guaranteed Monthly Income’ shall be payable to the claimant. The claimant also has the option to receive the commuted value of the future ‘Guaranteed Monthly Income’ payable in the form of a lump sum at the time of the death of life-insured, discounted at 7.5% per annum.
In case you survive, receive monthly income ranging from 8.35% to 13.03% per annum of total premiums paid. For instance, a 45-year old man investing Rs 1 lakh annual premium for a premium term of 12 years, then his income term will be 24 years (double of premium payment term of 12 years). His sum assured under the policy will be Rs 11 lakh (11 times annual premium). On survival, he will get guaranteed monthly income (tax-exempt income) of Rs 9170 for 24 years or about Rs 22 lakh.
Minimum, maximum entry/exit age
In life insurance, any reference to age is as on last birthday. In Tata AIA Life’s Guaranteed Monthly Income Plan, the minimum entry age for a policy term of 5 years is 13 (years). The maximum entry age in the same case is 60 years. The minimum annualized premium for a policy term of 5 years is Rs 75,000.
The minimum entry age for a policy term of 8 years is 10 (years). The maximum entry age in the same case is 60 years. The minimum annualized premium for a policy term of 8 years is Rs 50,000.
The minimum entry age for a policy term of 12 years is 6 (years). The maximum entry age in the same case is 55 years. The minimum annualized premium for a policy term of 12 years is Rs 36,000.
The maximum maturity age also varies as per the policy term. For a policy term of 5 years, the maximum maturity age is 65 years. For a policy term of 8 years, it is 68 years. For a policy term of 12 years, it is 67 years.
Large premium boost
The policyholder in Tata AIA Life Guaranteed Monthly Income Plan will be eligible for a large premium boost benefit. This, of course, depends on the premium payment term and annualized premium chosen. The applicable percentage will be added to the Income Factors while calculating the ‘Guaranteed Monthly Income’.
In the premium payment term of 5 years, an annualised premium of Rs 1 lakh to Rs 2.49 lakh will get a large premium boost of 0.40%. Premium of Rs 2.5 lakh or above will get a boost of 0.70%.
In the premium payment term of 8 years, an annualized premium of Rs 75,000 to Rs 0.99 lakh will get a large premium boost of 0.20%. If the annualised premium is Rs 1 lakh to Rs 2.49 lakh, you will get a large premium boost of 0.40%. Premium of Rs 2.5 lakh or above will get a boost of 0.70%.
In the premium payment term of 12 years, an annualised premium of Rs 50,000 to Rs 74,999 will get a premium boost of 0.1%. A premium of Rs 75,000 to Rs 0.99 lakh will get a boost benefit of 0.20%. If the annualized premium is Rs 1 lakh to Rs 2.49 lakh, then you will get a large premium boost of 0.40%. Premium of Rs 2.5 lakh or above will get a boost of 0.70%.
Types of riders
The policyholder has the flexibility to enhance the life cover by adding an optional rider, by paying additional rider premium over and above the base policy premium. The product offers three riders. Riders are not mandatory and are available for a nominal extra cost.
Firstly, the Tata AIA Life Insurance Accidental Death and Dismemberment (Long Scale) (ADDL) Rider ensures the protection of one’s family by paying his nominee an amount equal to the rider sum assured in case of an accidental death. In case of severe dismemberment like loss of limbs or bodily functions or severe burns due to an accident, it will pay a percentage of the rider sum assured as per the ADDL benefit chart. The benefit will be doubled in case of certain accidental death or dismemberments. This rider can be attached only at policy inception.
Secondly, Tata AIA Life Insurance Waiver of Premium Plus (WOPP) Rider provides for the waiver of all future premiums of the basic policy which fall due in case of death or while the proposer is totally and permanently disabled. This is provided that the death occurs /disability commences before the proposer reaches 65 years or the end of the premium payment term of the basic plan, whichever is earlier. This rider also can be attached only at policy inception.
Thirdly, Tata AIA Life Insurance Term Rider ensures additional protection to one’s family by paying his/her nominee an amount equal to the rider sum assured in the event of untimely death. In the event of death, the rider will pay death benefit equals to Sum Assured on Death or an amount equal to (1/120) times Sum Assured on Death, every month for fixed 10 years starting from the subsequent monthly death anniversary. This rider can be attached at policy inception or at subsequent policy anniversaries during the premium payment term by paying an additional term rider premium.
The RupeeIQ take: Monthly income plans of HDFC Life Super Income Plan and PNB MetLife (Monthly Income Plan-10 Pay) both offer guaranteed income for a period of 15 years. Max Life Monthly Income Advantage Plan gives monthly income for 10 years. Bharti Axa Life Monthly Income Plan+ pays a monthly amount for up to 15 years, and at maturity also gives a non-guaranteed annual reversionary bonus plus non-guaranteed terminal bonus. Clearly, Tata AIA Life Guaranteed Monthly Income Plan gives monthly money for a much longer period of 24 years.
Essentially, Tata AIA wants to position the plan as not only one that provides financial protection for one’s family but also doubles up as a source of monthly income that helps in meeting tomorrow’s requirements. However, it is important to understand the rate of return that you would get on survival. If you are buying this just for investment, you should have greater return expectations.