Personal Finance

Not a premium choice

Rajalakshmi Nirmal | Updated on March 09, 2018

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Exide Life’s Smart Term Plan is expensive compared to plain-vanilla covers

Exide Life Insurance recently launched a term life insurance policy with ‘return of premium’ feature. This policy returns up to 150 per cent of the premium paid if the insured survives the policy.

While the product may appeal to people who look for survival benefits in a life insurance policy, the premium is quite expensive, and makes it a poor choice.

Individuals in the age group of 18-60 (higher limit is 58 years in step up option) are offered this product. The maximum term one can take is 30 years. The minimum sum assured is ₹5 lakh for the ‘classic’ plan and ₹10 lakh for the ‘comprehensive’ and ‘step up’ plans. Premiums can be paid annually or only in the initial five years or even as a single one-time payment. The policy also offers two riders — critical illness and accidental death, disability or dismemberment. The critical illness rider covers about 25 illnesses.

Key options

Exide Life Smart Term plan has three options. Under the ‘classic’ plan, you choose the sum assured and pay the premium for the policy term. If you survive till the end of the term, an amount equal to 100 per cent of the annual premiums paid is returned. In ‘step up’ — the second option under the policy — your payout on surviving the policy period may extend up to 150 per cent of the premiums, based on the policy term chosen by you.

If it is 10-14 years, you would be returned 110 per cent of the premium. The benefit rises to 120 per cent, 130 per cent, 140 per cent and 150 per cent for 15-19 years, 20-24 years, 25-29 years and 30 years, respectively.

A third ‘comprehensive’ option allows you to choose a sum assured under the classic variant and, in addition, take a higher life cover (minimum of ₹10 lakh) for a nominal increase in premium. On completion of the policy term, an amount equal to 100 per cent of annual premiums paid for the cover under the classic variant is returned.

The advantage here relative to the first option is that you get a larger life cover for a relatively lower premium; the survival benefit is the same in both the cases.

Our take

For life insurance, it is best to go for a basic term plan which is the cheapest life insurance cover available in the market today. In ‘return of premium’ policies, including the Exide Life Smart Term plan, the premium is steep.

For a 35-year-old male, a classic policy under Exide’s Smart Term plan for 20 years will cost about ₹25,825 (excluding service tax) annually. But, a pure term life cover for the same person will cost just about ₹10,000-11,000 a year. If you choose the step up plan, the annual premium on the policy will further shoot up.

An illustration given in the policy brochure indicates that for a male, aged 40, who chooses a cover for ₹50 lakh for 20 years, which will fetch 130 per cent of premium back on surviving the policy, the annual premium will be ₹31,698. This works out to a petite return of 2.435 per cent (internal rate of return or IRR).

To avoid compromising on returns, it is always better not to mix insurance with investment.

More often than not, to pay back the premiums you shelled out, insurance companies that offer return of premium plans invest them in debt instruments which may generate poor returns. Further, expense structure of these plans is also on the high side. So, rather than spending on a ‘return of premium’ life cover, you can buy a plain-vanilla term life insurance and invest the balance that you save in any of the equity or debt instruments available in the market according to your risk appetite.

Published on September 04, 2016

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