Aditya Birla Sun Life Insurance (ABSLI) has come out with an income protection plan in term insurance called Income Suraksha. This plan allows the policyholder to provide monthly income (which can grow in compounded manner) to the nominee, instead of a lumpsum amount as is the practice in normal term insurance plans. This small change addresses the primary function of term insurance in a better manner, introduces a range of payouts and is beneficial to a group of policyholders and nominees. Priced competitively, the plan also offers other add-ons for better protection.
Range of payouts
Assume a normal term insurance offering a ₹1-crore sum assured on death of the policyholder in the policy term, which is then used on discretion of the nominee. To compare with the normal, the payout in the Income Suraksha plan needs to be broken down into maximum and minimum payouts.
Assume a monthly income of 1 lakh (fixed) for the policy term of 30 years in Income Suraksha plan. If the policyholder faces an unfortunate event in the first year, the term insurance will pay 12 lakh per year for 29 years which is ₹3.5 crore in total or ₹1.5 crore when discounted to the first month of payment (7 per cent discount rate). On the other hand, if the unfortunate event takes place in the last day of the policy term, the nominee is still guaranteed 10 years of ₹12 lakh per annum income paid monthly, which is ₹1.2 crore in total or ₹90 lakh discounted to the first month. As can be seen, for the purpose of comparison to normal term insurance, the payout can range from ₹90 lakh to ₹1.5 crore and at comparable pricing to normal term insurance.
The plan also allows for income increasing at 5 per cent per annum in the policy term, upto 1.5 times the original amount. The monthly income at the time of policy initiation is compounded at 5 per cent per year whether or not the payout is triggered. This increases the payout range to ₹1.2-2 crore on a discounted basis.
Applicability criteria
The plan is ideal for policyholders with nominees who are not finance-savvy. Even with a good education, nominees who lack experience in managing financial investments when faced with a lumpsum payment can still be protected. Such arrangement also ringfences the nominee’s monthly income from unscrupulous parties looking to benefit from the sudden inflows, including the rising prevalence of online fraudsters. This makes it ideal for policyholders supporting aged parents or nominees without the financial wherewithal to handle a lumpsum payment. Since, the term insurance payouts are not taxed, the income is a direct support.
The plan also accentuates the base feature of term insurance. The liability of a policyholder, by way of home loans, regular income support to family members, education costs of children, are higher in the earlier years. This is the period when the insurance payout is at its highest in the Income Suraksha plan along with an option to compound the payout.
Pricing and other features
The annual premium for a 35-year-old male with a monthly income of 1 lakh for a 30-year policy term is priced at ₹20,760 per year in the Income Suraksha plan. A normal term insurance for the same age and 1 crore sum assured can cost between ₹17,000 and ₹21,000 per year in other insurers. The same plan with 5 per cent yearly compounding of income will cost ₹30,000 per year. The plan also includes a first-year discount of 7 per cent for salaried customers and an additional 2 per cent discount for women customers.
The plan also offers common add-on riders that can be purchased, including waiver of premium, hospital care, critical illness, and surgical care riders. In the accidental death and disability rider, 100 per cent of the sum assured as an additional lumpsum is paid out.