Insurance policies that require you to pay premiums for a specific period of time and later get regular cash flows for a defined timeframe are well-known.

IndiaFirst Life GOLD (Guarantee of Life Dreams), a non-linked, non-participating, individual saving, limited premium paying, life insurance plan was rolled out recently.

The plan comes with multiple premium payment terms and income receipt modes for policyholders over fairly long-time periods spanning decades.

Here’s more on the plan for you to take an informed call.

What’s IndiaFirst GOLD about?

The policy allows you to opt for one of three premium payment tenures. These are available for 6, 8 or 10 years. This is the period for which you must keep making premium payments to receive the full benefits.

The next part is about choosing the policy term — the period up to which the IndiaFirst Gold plan operates. Now, the policy terms available are 30 or 40 years.

Premiums can be paid monthly, quarterly, half-yearly or annually. Incomes can also be received monthly, quarterly, half-yearly or annually. The annual payout option is preferred as the rates are a bit higher than other choices.

Then there is the all-important part about receiving payouts from the policy periodically. Here, three options are available. There is the immediate income option, which means that your payouts begin as early as a month after you start paying your premiums if you choose to receive it that way. In case yearly payouts are chosen, you would receive your payments after the end of the first policy year.

Then there is the intermediate income option where payments are made from the end of the fifth policy year.

Finally, there is the deferred income option that makes payments only from the end of the tenth policy year.

Premiums, incomes and yields

The base income you receive will be decided on the basis of your age, gender, premium amount, policy term, premium payment tenure and the type of income option you choose.

Here are three illustrations given for different scenarios, and the likely payouts.

 Immediate income: A 30-year-old lady takes a policy with ₹1 lakh annual premium (excluding taxes) for a payment term of 10 years and a policy tenure of 30 years. She will receive ₹22,153 as base annual income at the end of the first policy year. From the end of year two, the base income will increase by a simple rate of 10 per cent. So, she will receive ₹24,369 at the end of the second year and so on, and ₹39,876 at the end of the ninth policy year. From years 10 to 30, she will receive ₹42,091. At the end of the 30th year, she will get ₹10 lakh as maturity benefit. Note that the policyholder will pay ₹1 lakh each year for 10 years.

When the XIRR is calculated for these cash flows, it translates to a yield of about 4.85 per cent.

 Intermediate income: A 35-year-old man takes the policy with ₹2 lakh annual premium, with a payment term of 10 years, policy tenure of 30 years, for a base annual income of ₹46,288. His base income will increase at a simple rate of 15 per cent. But he will start receiving his incomes only from the end of the fifth policy year. He will get ₹74,061 at the end of the fifth year, ₹81,004 by the end of the sixth year and so on. In the ninth year, he will get ₹1,01,834 and from years 10-30 it is ₹1,08,777. At the end of the 30th year, he receives the annual payout and the maturity benefit of ₹20 lakh.

These cash flows translate to a yield of about 5.21 per cent for the policyholder.

Deferred income: A 40-year-old man buys a policy with 10-year premium paying term, ₹5 lakh annual premium for a policy term of 30 years. He will receive ₹2,23,146 annually from the end of the 10th policy year. The same amount will be received by him for years 11-15. From years 16-20, he will get ₹3,23,562 and so on. He will also receive two cashbacks of ₹2.5 lakh each at the end of the third and tenth years. At the end of the 30th year, he is given the annual payout and a maturity benefit of ₹75 lakh.

These cash flows give a yield of 6.06 per cent for the policyholder.

Death benefit will be highest of: sum assured on death; or 105 per cent of total premiums paid till the date of death; or sum assured on maturity, minus the survival benefits paid to date; where sum assured on death is 10 times of annualised premium. So, the life cover isn’t very substantial.

Should you buy?

For policyholders, as seen above, these yields (calculated pre-tax) are not attractive enough and may suit only those looking for certainty in cash flows and who do not mind low returns.  When taxes are included, yields would go down a bit further. For investors eyeing steady cash flows, single premium immediate annuity schemes may be reasonably attractive as some private insurers pay up to 7.4 per cent yield (XIRR), if you can afford a large lump-sum upfront.

Related Topics