Aegon Life has launched a new variant of iTerm plan, where the policyholder gets a monthly income after the age of 60 years till his/her demise. This is in addition to the lumpsum pay-out at the age of 60. In a way, it is a term plan with a pension feature. For those who simply can’t let their insurance premiums go waste, it looks like a good option. However, as always, let’s dig deeper. Let’s assess if a plain vanilla term plan will do a better job.
In Aegon Life iTerm Plan (Dual Protect), the policy tenure is even more important since the monthly income is paid after the age of 60 till the completion of policy tenure or the policy holder’s demise, whichever is earlier. Minimum Policy Tenure is up to the age of 70 and maximum tenure is up to the age of 100. Maximum Premium payment term shall be up to the age of 60.
Aegon iTerm: Dual Protect (Term plan with monthly income): Benefits
If the policyholder passes away before the age of 60, the nominee will get the Sum Assured. No question of monthly income in this case.
If the policyholder survives till the age of 60, on the policy anniversary following his 60th birthday, the policyholder will get 5% of the Sum Assured. If the Sum Assured (life cover) is Rs 1 crore, the policyholder will get Rs 5 lacs.
Subsequently, the policyholder will get a monthly income of 0.1% of the Sum Assured until the end of the policy term. If Sum Assured is Rs 1 crore, the policyholder will get Rs 10,000 per month from the age of 60 till the completion of policy term or demise or diagnosis of terminal illness, whichever is earlier.
If the policyholder passes away after the age of 60 but before the completion of the policy term, the monthly income will stop, and the nominee will get the (Sum Assured – Payments already made).
Is Aegon Life iTerm: Dual Protect good?
It is a term plan. So, it can’t be very bad. However, we need to compare the plan with other alternatives.
Let’s understand with the help of an example.
A 30-year-old non-smoker male purchases Aegon Life iTerm; Dual Protect plan with Sum Assured of Rs 1crore. He goes with the policy term of 70 years (coincides with his age of 100), the annual premium will be Rs 41,052. (With the policy term of 50 years, coinciding with the age of 80, the annual premium would have been Rs 34,114).
Aegon Life iTerm plan comes in two other variants. Life Protect and Protect Plus.
Life Protect variant is a pure term plan.
If the same 30-year-old person purchases life cover till the age of 100 (and the end of premium payment coincides with the age of 60), the annual premium will be Rs 30,602 i.e. he pays premium till the age of 60 but gets coverage till the age of 100. This is essentially a whole life term plan.
If he purchases life cover till the age of 60, the annual premium will be Rs 7,087.
Which of these 3 options is better?
There is little difference between Option 1 and Option 2. In both cases, the life cover is till the age of 100. In both cases, the policyholder/nominee will get the same amount if the policyholder dies before the age of 100. Only the timing of the cash flows will be different.
Under Option 1, the policyholder will get Rs 5 lacs at the age of 60. Thereafter, he will get a monthly income of Rs 10,000 per month. Let’s say he passes just before the age of 100, his nominee will get (Rs 1 crore – Rs 5 lacs – 40 years X 12 months X 10,000) = Rs 47 lacs.
Under Option 2, the nominee will get Rs 1 crore in the event of the death of the policyholder before attaining the age of 100 years.
Under Option 2, you are paying Rs 10,450 per annum more (as compared to Option 1). If you invest this difference in 8% per annum investment, you would have Rs 12.78 lacs at the age of 60 years. In the event of demise before 100 years, the nominee will get Rs 1 crore. If you add these 2 numbers, the sum is Rs 1.13 crores.
Under Option 1, you get a total of Rs 1 crore.
Between Option 1 and Option 2, Option 2 is a close winner.
I have compared Option 2 and Option 3 in an older post. The conclusion was that purchasing the term plan till the age of 60 was a better option.
How do we compare Option 1 and Option 3?
What is the worst-case Scenario for Option 1?
The policyholder dies before the age of 60. Both variants pay the same amount at the same time. In Option 1, you pay almost 6 times the premium.
What is the best-case scenario for Option 1?
The policyholder dies just before the age of 100, so that he gets Rs 5 lacs as lumpsum, Rs 10,000 per month for almost 40 years and the nominee gets Rs 47 lacs on his/her demise.
Under Option 3, you won’t get anything since the life cover is only till the age of 60. However, you can invest the premium differential. The difference in annual premium is Rs 33,965.
If this difference could be invested in an investment product that yielded 8%, this corpus would grow to ~ Rs 41.5 lacs. At 10%, the corpus would grow to ~ Rs 61.5 lacs. Now, this money is yours. You can use it whichever way you want to.
We can try to replicate the cash flows of Option 1 (Rs 5 lacs lumpsum, Rs 10,000 monthly income for 40 years and Rs 47 lacs at the time of demise) through investments of saved premium for 30 years. Let’s see how this fares.
Let’s assume that your investment earns 8% till the age of 60 and 6% thereafter.
You will have Rs 41.5 lacs by the time you turn 60.
Even if you take out Rs 5 lacs right away and then take out Rs 1.2 lacs on an annual basis, you would be left with Rs. 3.82 crores at the age of 100. And for the family to get this money, nobody must die. body must die. Under Option 1, the nominee would get only Rs 47 lacs (even if the policyholder were to die just before the age of 100).
By the way, it is not that Option 1 cannot come out trumps. It can. Let’s say if the policyholder were to die at the age of 61. Option 1 would still pay a total of Rs 1 crore. Option 3 pays nothing. Moreover, the investment of saved premiums wouldn’t have grown to Rs 1 crore.
What is a more prudent choice?
In my opinion, a pure term plan till the age of 60 (or 65 or your retirement age) is a better option than going for life cover till the age of 100 (with or without interim cashflows).
At the same time, if you cannot convince yourself to purchase an insurance plan that does return anything, whole life term plans such as Option 1 (with interim cashflows) and Option 2 (without interim cash flows) are still better than traditional life insurance plans.
What do you think?
Respected Sir. Regards. I am 56 yr retired person. . I wish to purchase I term dual protect plan for my only 27yr married daughter turning 28 yrs in September 20. For 2cr. Premium around 66k yrly.. For 32 yrs. as part of retirement planning. From my owned funds. She is at present earning 900k yrly. as salary. . My son in law aged 30 yr. earniing similar amount as salar.y .At present she has no liability. Policy term 100 yrs. IRR comes 5.66℅ if death occures at 99 yrs.. If she lives 100 yrs irr will be 5.1%.If she dies early IRR will increase correspondingly. . I am conservative investor. I expect index etf will offer maximum around at 8% annually. For 32 yrs. After taxation yield around 7%…(CAGR)… I feel after 32yrs 6% return difficult. I wish to pass on death benefit. for would be her children. From above policy.. I understand Rs 20k per month payout at her 60th birth date will be having little value as per present circumstances. Insurance premiums are forced investment while SIP is not. . At present I am planning her monthly frugal life style expenditure would be at Rs 160k per month at age 60 yrs. At present looking at reinvestment risk as prirority. I am not able to take decision for taking this policy. Your valuable comments required. Thanks
Dear Sir,
I trust your calculations. I have not verified the calculations.
As I see, you have good grasp of the product. You understand the pros and cons.
If you are ok with that level of return (and you have shared a fine rationale), you can go ahead and buy the plan.
She is saving for downpayment for estimated 1cr apartment. Rent paying 18k & 35k monthly expenses now