Finance

A Monthly Income Plan From a Life Insurer vs. A Do-It-Yourself Monthly Income Plan

Posted Vinaya HS

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 thoughts on “A Monthly Income Plan From a Life Insurer vs. A Do-It-Yourself Monthly Income Plan”

  1. I have shown several such excel sheets to some of people who just love LIC.
    Their excuse for sticking with LIC is I will not be able to save enough money for FDs each year (RDs each month). LIC policy premium is just one more bill to pay.

    Mental accounting at its worst.. what do you say?

  2. Nice post!!
    How would you compare starting an RD v/s PPF. Since returns on PPF are compounded and not subject to tax whereas returns on RD can be taxed according to your tax slab.

  3. @Vinaya,

    Excellent analysis, very good use of charts to explain returns.
    Make sense to do it yourself but there are people who are lazy and will fall prey to such plans.

  4. The first thing that strike me when I read this plan was similar to what Chinmay has pointed out… Why not put the money in PPF and enjoy EEE benefit rather than putting my hard earned bucks in such a stupid plan…Let it grow at 8.5% for 15 years and after that use the corpus.

  5. @Indian Thoughts —

    I seriously wonder how anyone could love any policy from LIC. Do you think you’d be able to share some of your analyses over here? Perhaps as a guest post?

    @Chinmay —

    That’s actually a good idea for a post. Will work on it.

  6. @Rakesh —

    From what I’ve seen, if you’re lazy with your finances now then they’ll be equally lazy with you in future.

    @Tushar —

    Yeah. What’s worse about these insurance policies is that you have no clue what the accumulated corpus and how it’s being accumulated.

  7. Insurance companies have never been good in giving Financial Investment Plans neither they are expected to, Insurance companies in India thrive because of only 1 factor & that is lethargy/laziness of people in India. I think it is a big paradox… Insurance is planning for death & investment is planning for life, I do not see any way how both can be done in one product…..

  10. Very good trapping plan from Metlife.. I surrendered a policy from TATA (Maha life..) which gives the income upto 100th age. I thought it was worse. But , here, it gives only for 15 Yrs.. ha ha . Worst o worst..God should save the people..

  12. I need to pay a premium for 12 years (say 15k/annum), then they will give me around 12k per annum upto my 100 years. you also gave a detailed page in your blog once upon a time with many calculation and how a customer is cheated like that.. Remember!!

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