Met College Plan is a traditional insurance cum investment policy, aimed at meeting the financial needs of a child in future. This traditional plan is a participating policy and is thus dependent on the periodic bonuses declared by the insurer. Being a transparent policy, it would keep the policyholder well informed on the costs incurred and profits made.
This policy has a maximum policy term of 24 years and minimum term of 12 years, as per the industry norms. Depending on the profits made by the participating life fund, this policy would declare a bonus after the completion of the 2nd year. The sum payable upon maturity or the death of the insurer will include the reversionary bonus made from the profits. This bonus is calculated by simple interest formula levied on the sum assured.
The policy will pay 20% for three years towards the end of the policy term, before maturity. Upon maturity, the policy will make the balance 40% payment of the assured amount along with the accumulated bonus. There can be a terminal bonus as well.
If the policyholder expires during the policy’s term, it will immediately bestow the death benefit along with the accumulated bonus till date to the nominee. Furthermore, the insurer will waive off the future premium installments to keep the maturity benefits intact. In this policy, the death benefit is 10 times higher than the annual premiums paid.
How the policy works?
Let us assume, a 35-year-old individual purchases the Met College Plan for an annual premium of Rs 1, 00,000 for duration of 20 years. The total sum assured is around Rs. 20.84 Lakhs, where the policyholder will start receiving the 20% of the assured amount, three years prior to the policy term completion, i.e., around Rs. 4.17 Lakhs, as per the 8% assumed rate of return. This also includes the guaranteed maturity benefit of around Rs. 8.34 Lakhs, which makes a net return of 5% per annum. Met College Plan is offered with an attractive structure and features matching transparency of a traditional plan.
Usually traditional plans have a return of 4-6% per annum and subsequently financial planners skip such investment plans. Due to the low levels of returns, the policyholder must invest more to meet the financial goals, successfully. However, a term policy like Met College Plan is much cheaper and offers greater benefits, as it ensures the financial goal is not interrupted in case of the policyholder’s untimely death.
(Source: This article has been adapted from the article "Product crack: PNB Metlife’s Met College Plan" that appeared on 26 February , 2015 in livemint.com)
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