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Nath Balakrishnan

THE flurry of unit-linked insurance plans have pushed to the back-seat the traditional term and endowment policies. However, this has not deterred Tata AIG from launching ShubhLife, an endowment plan . We will examine some of the key features of the plan this week.

Plan details

Unlike pure term plans, which do not make a payout should the policyholder survive the policy term, endowment plans do so, fusing with protection the benefits of savings. Under the ShubhLife plan, the policyholder can decide to pay premiums over the entire plan term or restrict it to a shorter duration. In the latter case, it is important to ensure that the premium payout is under 20 per cent of the sum assured so that tax benefit is available in its entirety. In case the premium payment does exceed the threshold of 20 per cent, the policyholder would be better off opting for a longer premium-paying term.

Under the ShubhLife plan, Tata AIG also provides for a guaranteed addition of three per cent of the sum assured at the end of the first policy year, and thereafter in steps of two years till the half-way mark of the plan's term is reached.

To illustrate: If a policyholder opts for a 20-year term, guaranteed additions would be paid out at the end of policy years one, three, five, seven and nine. Guaranteed benefits are simple additions and not compounded.

The plan also provides for a reversionary bonus from the sixth year onwards. This is a function of the company's investment performance and not guaranteed. On the policy's maturity, the policyholder would receive the sum assured, the guaranteed additions and the reversionary bonuses declared till the end of the policy term. In case the policyholder dies when the policy is in currency, the beneficiary would receive the sum assured plus the guaranteed additions and the bonuses that have accumulated till the time of his death.

Other features

If a policyholder wants greater protection, he can append a set of riders to the basic plan. These riders include cover for accidental death, dismemberment, waiver of premium and critical illness, apart from a term rider. Should the policyholder die in an accident, the sum assured under the rider would be paid, apart from the payout under the basic plan.

The policy becomes paid-up after three years' premiums are paid. Further, if anytime after three policy years the policyholder is unable to pay the premium after the expiry of the grace period, the company will advance the said amount as a loan.

This is subject to the policy's cash value being equal to or greater than the amount being extended as a loan.

The policy also provides for a guaranteed surrender value after three years' premiums have been paid. Also, in case the policy lapses on account of non-payment of premium and the policyholder wants the plan reinstated, it can be done at the discretion of the company within five years from the date of the lapse.

The policyholder would have to provide, among other things, a statement of health, apart from paying all overdue premiums with interest.

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