Insurance Policy Review -1

Policy Maturity Value - Max Life Whole Life Insurance Policy Review

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Max Life Insurance Co. Ltd – Whole Life Participating Insurance Policy Review

Most of us have been in the situation where we buy the insurance policy and after a few years, we realized that the policy we purchased is actually not worth it or the investment which we made for the Sum Assured/Policy coverage is very low.

Thus, we either end with buying an additional Insurance policy for more life insurance coverage or started hating/regretting the Insurance as a whole product.

With the passage of time, lots of investors are getting aware about Term Insurance Plans and its importance when it comes to Life Insurance.

  • But what keeps hurting the investors: why they have invested in such bad policy (ies) in the past or what should they do now?
  • Do they really need to pay the premium for their existing policy or just surrender it for – up to 60% of its value?
  • How much return can I get from the Policy? Which is not a Term-Plan?

To answer all the related queries, we at Investiture, decided to review such policies which are either closed down i.e. their plan is Withdrawn or just launch as new Non-Term Insurance Schemes by the Insurance companies.

In India, there are more than 5,000 of Insurance Policies (currently running) which are not Term-Plans i.e. they are either Endowment Policy, Money Back Policy or Unit Linked Insurance Plans (ULIPs). All of these policies are sold to lots of investors every year as a Family Cover cum Investment Products. Remember

INSURANCE IS NOT AN INVESTMENT PRODUCT. ITS PURPOSE IS TO PROVIDE FINANCIAL SUPPORT TO DEPENDENTS IN YOUR ABSENCE.

Moving ahead with our analysis and review.

Read our Article: Tips to Smart & Secure Banking Transaction

We’ll be covering Max Life Insurance – Whole Life Participating Policy (100 Years Cover), which is now inactive (from 31st Dec 2013)  (IRDAI Policy Status) by the company but still has more than Lakhs of insured individuals whose premium company is still receiving or the insured person is still paying.

Basic Information About the Policy

The policy was launched on 20th Feb. 2001 as Whole Life Participating Insurance Policy which provides coverage till 100 years of Age of Insured Life. The policy provides the insured the benefits of Life Coverage along with the option of choosing 8 Participating Riders Benefits.

On the event of the death, the policyholder will get the

  • Sum Assured + Cash Value or
  • The Annual Bonuses or the Paid-up addition (PUA) + Rider Sum Assured (If Any opted for).
  • The Premium Paying Term (PPT): Regular i.e. till the Policy-Term, though the insured can opt for the Premium Offset but after 20 years of PPT or when the total yearly bonuses are more than the payable premium.

For more Information: Max Life Insurance Whole Life Participating Policy

Sample Case Analysis

Mr. X bought the Policy in the Year 2007 with following options: –

Fig 1 Client Details Max Life Whole Life Insurance Policy Review
Figure1: Client Details

After the 12th year, Mr. X realized from the Financial Planner that the premium payment is very high with less Insurance coverage and the premium paying term (PPT) is for whole life as the option for premium offset is not activated by his agent at the time of drafting the policy document.

Is he being conned or just another case of mis-selling by the Insurance Agent or ill-literacy of the insured???

Rather than going into determining whose fault it is, Let’s analyze what he can do now?

Fig 2 Premium details-Max Life Whole Life Insurance Policy Review
Figure 2: Annual Premium Details

There are two benefits which Mr. X can opt for either Cash Value (Bonuses) or Paid Value Additions. Both will be available after 3 years of the Policy term. Their calculations are based on the assumptions of either 6% or 8% return on the investments made by the policy after deducting the charges.

Though, to make it a conservative view, we received the policy document from Mr. X and use the guaranteed options as shown in the policy. (Never ever get lured by the returns in Insurance Policies).

Now, he is confused whether to surrender such policy and opt for new Insurance Policy for more coverage or just let it continues and Additional policy for maximum Sum Assured (Paying Premium for 2 Policies – Costly).

Here are the few alternative solutions/recommendations:

Sol. 1: Surrendering the Policy

Now if he surrenders the policy then, the amount he would receive: is up to 60% of the value. The surrender value is determined on the basis of calculation given by the company in the policy document. So here would be possible value, if opted for surrender:

In the case of Mr. X, he would be receiving up to 54.35% as surrender value.

Max Life Whole Life Insurance Policy Review
Figure 3: Guaranteed Surrender Value

Sol. 2: Continue the Policy and Change the Bonus option to Cash Value

It will bring the principal back but will be costly, till the Cash Value is greater than the Premium Paid. In Mr. X case, he would be receiving the same from the age of 70 years onwards i.e. he has to pay the premium for the next 13 years.

Following will be the estimations and sum of Cash Outlay:

Figure 4 Policy Maturity Valuee
Figure 4: Policy Maturity Value

Sol. 3: – Opting for the New Policy and Let it continues

This option will only increase the cost. Along with, the new policy at the age of 57 will cost Rs.22,000/- approx. (Term Insurance Plan for Rs. 30 Lakh of Coverage) till 75 years of age. Thus, in total it will cost Rs. 32,000/- (Excluding Taxes).

Furthermore, the annualized return on policy (if the policy continues) will be just 0.81% approx.

Policy Maturity Value - Max Life Whole Life Insurance Policy Review
Figure 5: Policy Maturity Value

Conclusion:

It would feel bad to lose the principal amount but it would be recovered back it such policies has been surrendered on right time. The value received can be re-invested as Lump-Sum and the rest Premium as SIP in Mutual Fund Scheme. 

From the below table: If Mr. X surrender the policy after 3 years of continuation, then still he would make more money than the policy. Even After the 12th policy year, he would be making 4 times more money than the Insurance Policy on Maturity, considering if the MF Scheme would have given only 9% annualized return.

Alternate Investment Value - Max Life Whole Life Insurance Policy Review
Figure 6: Alternate Investment Maturity Value

Read our Article: What are the Benefits of Investing in Direct Plans of Mutual Fund Schemes?

Figure 7 Insurance vs MF Return Analysis
Figure 7: Insurance vs MF Return Analysis

It is always suggested to opt for term-insurance plans rather than the plans which are not the pure-term plan.

Disclaimer: The policy is analyzed on the basis of the return assumptions provided in the policy documents. It will be possible that nominal variations might occur in return component from the actual ones due to the Bonus Announcements by the company.  Furthermore, Insurance Products are not Investments they are meant to secure your dependents financially after you. Please be wise and keep consulting from the Expert before opting for such policies.

If you have any such policies and still confuse with what to do, then contact us or subscribe to our I-Financial Plan (Basic) Service