Have you ever thought what would be your financial source of income if somehow due to some mishap, your regular source of income suffers a setback. Most of the people think that a term insurance well serves the purpose. But here’s the catch, a term insurance pays out a lump sum amount in case of death/disability which is, usually, exhausted in meeting the immediate expenses, thus leaving no future funds for the family. In contrast, monthly income plans, or MIPs involve paying out the money to the family/nominee as a fixed monthly income over a long period of time which can be up to 25 years.
Monthly income plans is most apt for those who want to assure an alternative source of income as a backup for their regular income. MIPs also works well for those who are looking to have a guaranteed monthly income after retirement.
Here’s How It Works
The policyholder pays the premium regularly through the premium payment term. At the end of the term, if the policyholder survives, he gets a regular monthly income till the end of the policy tenure, as specified in the policy (note: in case of MIPs policy tenure is longer than premium payment term). When the policy tenure ends, the insured gets terminal bonus and simple reversionary bonus. With the payment of these bonuses, the monthly income plan terminates.
However, if the policyholder dies during the policy tenure, his nominee becomes entitled to get the regular monthly income as well as the premiums paid by the insured up till death. At the end of the tenure, the nominee is paid out terminal bonus and simple reversionary bonus.
Mr. Sharma has an annual term insurance policy for 10 years tenure. He pays a premium every year. If he dies within this tenure, his nominee gets the death benefit. So, on a premium payment term of 10 years, Mr Sharma gets a life cover for 10 years.
Mr. Verma who’s a bit smarter than Mr. Sharma opts for a Monthly Income Plan with a premium payment term of 10 years. The tenure of the policy is 20 years. He pays a regular premium for up to 10 years after which he starts to get a fixed monthly income for the next 10 years. However, if he dies within the tenure, even after the premium payment term, his nominee gets the benefit. So, on a premium payment term of 10 years, Mr. Verma gets a life cover for 20 years.
Perks of MIPs
MIPs give you the option to get valuable riders added to your plan. Riders add substantial value to the basic cover at a nominal additional premium.The best thing about monthly income plans is that you get the life cover even beyond the premium term as illustrated in the above example.It’s a win-win policy. The insured either gets the death benefit or the survival benefit as the case may be.The returns from a monthly income plan is fixed and guaranteed as it is untouched by market fluctuations.The insured also gets terminal bonus and simple reversionary bonus.
What’s not so Good?
The insured needs to incur surrender charges if he chooses to withdraw the amount before the policy term. Moreover, term opted at the time of buying the policy can’t be changed later. And the worst of all, the fixed monthly income is taxable.
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