Vicky Kaushal (star from movies like Uri and Raazi) was recently roped in by Aegon Life for their ad to launch their first ever Term Plan with Monthly Income. In the commercial, Kaushal is seen calling a customer pitching a term plan. The customer complains that buying a term plan is an additional cost with conditional benefits. The commercial brings to light the fact that many customers hesitate to buy a term plan because it does not offer any returns.
Why do you need Term Insurance?
To take care of your family
If you are an earning member of the family, then you must have term insurance. In case of your unfortunate demise, the benefits from the term plan can help your loved ones pay for their regular expenses and also achieve their long term goals.
To pay off your loans
If you have any big liabilities like home/car/personal loans then you must buy a term plan.
What is Term Insurance?
Term insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified “term” of years. If the insured dies during the time period specified in the policy and the policy is active, a death benefit will be paid.
Say a 30 year old takes a term insurance of 1 cr and decides to take cover till the age of 80. If he passes away at the age of 75 then the insurance company will pay Rs. 1 cr to his family. And if he lives beyond 80, then he and his family will not get the sum assured (1 cr).
Many of us dislike paying the premium over the years and without getting any survival benefits. Aegon Life with the launch of this product has tried to plug this gap.
How does this Term Plan with Monthly Income work?
Mr. Sharma (30 year old, non-smoker) opts for this policy with the details below:
On Mr Sharma’s 60th birthday, he will be paid 5 lakhs (5% of the sum assured, Rs 1 cr). And at the end of every month, he will be paid Rs 10k (0.1% of the sum assured) till he turns 80 years or till he survives (whichever is earlier).
Isn’t this wonderful? By the time Mr Sharma turns 64, he would have recovered the entire premium that he paid over the years plus the company continues to cover him till the age of 80.
But aren’t businesses run to make profits? Is there something we are missing?
Let’s compare this Monthly Income plan with the plain vanilla iTerm plan Life Protect, offered by the same company.
On 60th birthday, 5 lakh is paid from this corpus and the remaining 27 lakh is invested @ 6%. The corpus after 20 years is 41 lakh, even after withdrawing Rs 10k every month.
Age: 30 years, non-smoker
Even though initially, the life insurance and monthly income combo seem like a dream come true: We are not considering the opportunity cost of capital of the extra premium paid. That money could be invested in other financial products and yield far greater returns that the payout from the insurance company.
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