This is one plan which most of the insurance companies are coming up. The first and the foremost thing to understand is the mechanism of the functionality of such investment plans.
MIP is a type of investment vehicle which provides regular monthly payment to the investor. The plan ensures that investor receives a stable amount of fund each month and is therefore typically suitable to the retired persons or senior citizens without other substantial sources of other income. MIP is similar in many ways to an annuity.
How it works:
There are two parts to describe how it works – accumulation part and payment part.
But before that, let’s understand few terms.
Policy Term – It is the number of years the policy will be activated.
Premium – A regular payment made to the insurance company to keep the policy in force.
Sum Assured – The sum assured is the minimum amount payable to the assured or his/her dependants on the death of the life assured.
Payout Period – The time period during which, the investor receives an expected return from an investment.
- Accumulation Part: The insured chooses the policy term as well as the premium payment term. The insured pays premium for the chosen Premium Payment Term. The Premium rates applicable will be dependent on the age, gender, policy term, premium payment mode and chosen Monthly Income.
- Payment Part: At the end of the Premium Payment Term, the guaranteed monthly income is received until maturity. Plus based on the offerings of the product, annual reversionary bonus is also paid out if declared.
Following is the illustration of the product Bharti AXA Life Monthly Income Plan.
Who can opt for it?
- Ideally for those who are close to their retirement process as there would be an adequate steady flow of income that combines advantages of meeting monthly expenditure as well as capital appreciation..
- Depending on the income and needs a person can choose the entry age. Still it is more suitable for the people belonging to the middle age so that during the time they reach the Payout period, the regular monthly income received can help them ensure fulfilling the various education needs of their children as well as the various miscellaneous needs and desires without being felt pressured.
Benefits:
- Guaranteed Monthly Income: The insured start receiving the Guaranteed Monthly Income after the completion of the Premium Payment Term, until maturity. This income is tax free.
- Loans: There are MIPs which provide the benefit of applying loan against Monthly Income Plan.
- Riders: There are products which provide several riders as option.
- Premium Discount: This is the benefit where in if the investor chooses high monthly income, rebate on premiums will be provided.
- Death Benefits: In case of unfortunate death of the insured the monthly income is received by the family members even before reaching the Premium Payment Term.
- Tax Benefits: Under Section 80C you can avail tax benefit, yearly premium (not more than 1lac) will be deducted from taxable income. Under Section 10(10D) death claim is completely tax free.
Companies offering such products:
- MetLife providing Met Monthly Income Plan – MetLife offers ‘Met Monthly Income Plan’ a participating plan which guarantees a monthly regular income for insured and family when the insured is there and even if insured is not there for 15 years or till end of the policy term. Moreover the plan lets choose the monthly income that the insured wants and MetLife guarantees that amount.
- HDFC – Monthly Income Plan – Long term plan – This scheme has been ranked as number 1 in MIP Aggressive category by Crisil. The primary objective of Scheme is to generate regular returns through investment primarily in Debt and Money Market Instruments. The secondary objective of the Scheme is to generate long-term capital appreciation by investing a portion of the Scheme`s assets in equity and equity related instruments.
- Max New York Life – Guaranteed Monthly Income Plan – It’s a traditional, non-participating, life insurance plan.
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- Reliance – Reliance Monthly Income Plan - This is a hybrid fund with a marginal allocation to equity which may go up to maximum 20%. This is ideal for a predominantly fixed income investor with a marginal appetite for equity risk. The investment horizon in this fund should typically be 2 years or more so that the long term benefit of having a marginal exposure to equity pays off. The fund intends to offer a predominantly fixed income investor the power of equity along with the stability of debt. It is suitable for investors with 2 years holding period.
The plan provides several special plans such as:
- Systematic Investment Plan (SIP)
- Systematic Transfer Plan (STP)
- Systematic Withdrawal Plan (SWP)
- Dividend Transfer Plan (DTP)
- Auto Debit and Electronic Clearing System
- Alternative Means of Redemption – Reliance Any Time Money Card
- Recurring Investment Plan for Corporate Employees (RICE)
- Online Transactions
- Salary Advantage