DIY MIP

A few days back, I happened to see an ad for this Monthly Income Plan from MetLife, a life insurance company. In this plan, you’re supposed to pay the premiums for about 10-years and then post these 10-years of paying premiums you’re guaranteed a fixed monthly income for the next 15-years.

As it always happens, I immediately started to think if a Do-It-Yourself (DIY) Monthly Income Plan (MIP) would be much much better off for you (after all why would you ever want the monthly income to stop after X number of years?) than a monthly income plan from a life insurer. In the MetLife plan, there are some complexities involved around your death and the related death benefits (since this is an insurance-cum-investment plan) but we’ll ignore all of these since I assume that you’d want to enjoy the monthly income in your own hand and not eye it virtually (!) from up above.

In the product brochure of the MetLife Monthly Income Plan (click here to download the product brochure), the following example illustration is shown –

Image of an example benefits illustration from the MetLife Monthly Income Plan product brochure

You can see from the above illustration that you pay Rs 35,541 each year for 10-years and then you get back Rs 2,500 per month for 15-years. After 15-years, the monthly income stops!

But what if you think a bit different from everybody else, don’t mix insurance and investment, and go for a do-it-yourself monthly income plan? Here’s what the above illustration would turn into –

Image of a do it yourself monthly income plan at a 6 percent rate of interest

You’d get the same Rs 2,500 per month in perpetuity! You could open a new Fixed Deposit each year for 10-years and implement this plan. It’s as simple as that. Or, you could even open a Recurring Deposit with a monthly payment of Rs 3,000 per month. There are many options. But what’s more important is that you stay in complete control of your money (it’s in front of your own eyes).

For the purpose of comparison with the insurance plan, if your DIY MIP were to earn an 8% rate of interest, here’s what your monthly income would look like –

Image of a do it yourself monthly income plan at an 8 percent rate of interest

About Rs 3,700 per month in perpetuity! (The insurance plan still continues to pay out only Rs 2,500 per month.)

And at a 10% rate of interest, here’s what your DIY MIP look like –

Image of a do it yourself monthly income plan at a 10 percent rate of interest

More than Rs 5,000 per month in perpetuity! (The insurance plan still continues to pay out only Rs 2,500 per month.)

Finally, the corpus left over (the maturity benefit figure in the insurance illustration) from the insurance plan is seriously laughable when you compare it with the corpus left over from your DIY plan.

So, why would you ever want to give your hard-earned money to a life insurer?

What do you think?

{ 13 comments }