Sometime this month Shriram Life Insurance launched a new version of it’s money back term plan. It must be noted that the insurance company already had a money back term policy earlier so the new one was the same policy with a few tweaks and changes.
Let us review Shriram Life Insurance money back term policy and see whether investors should go for it.
A term plan is meant for pure protection – the risk of losing your life – so if you were to die today, a lump-sum money would be left behind for your loved ones for their long term goals and daily living expenses. I am assuming that you know the different ways on how to calculate your life insurance needs and know should you buy life insurance or not – if not, it makes sense to read about them now.
Inside peek on Shriram Life Insurance money back term policy
The money back term plan from Shriram Life Insurance is a plan where you get the premiums returned to you if you survive the policy term. So on maturity, all premiums paid are returned to you. In case you die during the policy term, the Sum Assured along with the basic premiums paid is given out to your family/nominee.
The minimum age at entry for the old money back term policy was 18 years but in the new one, that has been reduced to 12 years. The maximum age at entry has also been moved from 50 years to 60 years. The Sum Assured is at a maximum of Rs 20 lakhs which is a bit on the lower side and comes as a disappointment.
The old money back term plan has riders like Accident Benefit Rider, Critical Illness Rider and Total and Permanent Disability Riders which can be taken on the base policy. These riders are also available with the new Shriram Life Insurance money back term policy with an addition – Family Income Benefit Rider. This is a unique offering – the way this works is that 1% of the sum assured is payable every month immediately from the end of the month of an accident for a guaranteed period of 10 years or till the end of the policy term – whichever is later.
The old Shriram Life Insurance money back term policy has a conversion option wherein the term plan can be converted into a whole life assurance plan provided is in force. This can only be done on the 6th last year of the policy – that is 5 years before the policy term. If you opt for this, no health checks will need to be done. I am not sure whether the new money back term plan has this conversion option or it has been taken away for good.
Another difference between the old and the new money back term plan is the surrender values. The old policy had large surrender values which have been done away with in the new one. Note that you will still incur surrender charges, just that in the new policy, you will take home a larger booty.
Examples of values for new and old Shriram Life Insurance money back term policy
For a 30 year old, for a sum assured of Rs 20 lakh and for a term of 30 years, the old term plan has a premium of Rs 22,371 and the new plan has a premium of Rs 25,153.
Generally, the surrender value is calculated as [(Number of premiums paid/Term of policy)*Sum total of premiums paid]
While the new policy gives the above value, the surrender value of the old policy gives just 70% of the above value which is why it is on the lower side. To calculate for the example given above, if a policy has run for 10 years, then :
Surrender value of old policy = .7 * (10/30) * (10*22,371) = Rs 52,199.
Surrender value of new policy = (10/30) ( (10*25,153) = Rs 82,843.
See the difference ?
The below snapshot also explains how the Family Income Benefit Rider works in Shriram Life Insurance money back term policy- so if the death happens after the 15th year, then 1% of sum assured (Rs 20 lakhs) which comes to Rs 20,000 is paid out every month till the remainder of the policy term which is greater than 10 years.
Should you buy Shriram Life Insurance money back term policy ?
First let me clarify that the premium for a money back term plan is more expensive than a pure vanilla term plan, in the latter you get nothing at the end of the policy term when you survive. Investors go for premium back term plans as they do not understand why life insurance is not an investment.
Now, if you have thought of buying Shriram Life Insurance money back term policy then what is true is that you have convinced yourself of going for a term plan amongst the different types of life insurance policies available in India. Think for a moment – if you survive, then all the insurance company is doing is giving you back your premiums. So in the above example, if for 30 years you had paid Rs 25,153, then at the end of those number of years, the insurance company will return to you Rs 30 * 25,153 = Rs 7,54,590.
The question I have is could you not have invested the extra that you are paying for the money back term plan to get some decent returns ? And what is the insurance company doing by simply returning the money back to you – inflation at 10% will make the purchasing power of the money so received very pathetic. So do not opt for a money back term plan ever – it does not make sense. It is always wise to take a pure vanilla term insurance plan for covering your life and lose the premiums paid on survival of the term than take a money back plan with the expectation that at least you are getting your premiums backs. Investors need to get out of this rut.
What’s your take on the new and old Shriram Life Insurance money back term policy ?