Behind the allure of a lump-sum insurance payout lies a harsh reality: many families struggle to manage it wisely, often exhausting it too quickly. Aditya Birla Sun Life Insurance (ABSLI) and Policybazaar are aiming to change that with their new ABSLI Income Suraksha Plan, which offers a steady monthly income for beneficiaries instead of a one-time payout. But is this a smarter choice, or are you trading long-term gains for short-term convenience?
Monthly Income vs lump-sum: What’s new?
The Income Suraksha Plan differentiates itself by providing beneficiaries with a monthly income instead of a one-time payout. For example, if a 30-year-old policyholder buys a 40-year policy term insurance and dies at age 35, the family will continue to receive monthly payouts for the remaining 35 years of the policy term.
However, even if only a few years remain in the policy term, the plan guarantees at least 10 years of monthly payouts. So, even if the policyholder dies at 65, with only five years left in the term, the family will receive monthly payments for the next 10 years.
“We observed that people who receive the death benefit prefer to be quiet about it due to risk of fraud. They don’t disclose it to their relatives also. This makes it difficult for them to get correct advice about how to manage the lump-sum death benefit,” explains Rhishabh Garg, head, Term Insurance BU, Policybazaar.com.
“The amount may get exhausted much before it should be. Even well-educated nominees may not be financially literate to manage it for it to last longer. This plan can help such families. Take it if your beneficiaries are not financially savvy,” he adds.
The Income Suraksha Plan offers two payout options:
Fixed monthly income
Inflation-adjusted income (at a higher premium).
For example, a 35-year-old male selecting a monthly income of ₹1 lakh with a policy term and premium payment term of 30 years would pay an annual premium of ₹20,760. The sum insured would be 120 times the monthly income, equating to ₹1.2 crore. Opting for the inflation-adjusted income option would increase the premium to ₹30,000 annually. Notably, the income payouts are tax-free.
Salaried individuals are eligible for a 7% discount on the first-year premium, with an additional 2% discount offered to women customers.
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Pure term insurance vs Income Suraksha: What’s the tradeoff?
Abhishek Kumar, an investment adviser, registered with the Securities and Exchange Board of India, and founder of SahajMoney, did a comparison between the Income Suraksha Plan and a traditional term insurance policy. According to Kumar’s analysis, a 35-year-old purchasing the Income Suraksha Plan with a policy term of 35 years would pay an annual premium of ₹24,000 for a sum assured of ₹1.2 crore and a monthly payout of ₹1 lakh.
If the policyholder dies at age 50, the family would receive monthly income for 20 years, totaling ₹2.4 crore. However, Kumar points out that the same premium could buy a pure term insurance plan with a higher sum assured of ₹1.5 crore. If the beneficiaries invest the lump-sum payout and manage to generate an 8% post-tax return, they could sustain the monthly income for much longer, potentially surpassing the ₹2.4 crore provided by the Income Suraksha Plan.
“If they are not sophisticated enough then the insured can consider buying this policy (Income Suraksha Plan) so that his/her dependent could receive monthly payout till 70 years of age,” says Kumar.
Mint take
The ABSLI Income Suraksha Plan presents a practical solution for families that may struggle with managing large lump-sum payouts. However, it comes at a cost. While the plan guarantees regular income, it may not offer the highest potential returns when compared to a traditional term plan with higher coverage and investment options.
Ultimately, the choice boils down to the financial literacy and preferences of the beneficiaries. For families lacking financial expertise, the Income Suraksha Plan could offer peace of mind. But for those confident in managing investments, a pure term plan might offer better value.
