Max Life Monthly Income Advantage Plan is a life insurance cum monthly income plan from Max Life Insurance.
The policy promises to offer guaranteed monthly income till the end of the policy term and a Lumpsum on maturity. The promise looks attractive, but is the policy benefit as good?
Should you buy this Max Life Monthly Income Advantage Plan?
Read this detailed Max Life Monthly Income Advantage Plan review to make an informed decision.
Table of Contents:
- Features of Max Life Monthly Income Advantage Plan
- Death Benefit of Max Life Monthly Income Advantage Plan
- Monthly Income and Maturity Benefits of Max Life MIAP
- Max Life Monthly Income Advantage Plan Review With An Example
- Analysis of Max Life Monthly Income Advantage Plan Returns
- Comparing Max Life Monthly Income Advantage Plan against PPF
- Comparing Max Life Monthly Income Advantage Plan against ELSS
- Verdict: Should you buy Max Life Monthly Income Advantage Plan?
- How to surrender your Max Life Monthly Income Advantage Plan?
Features of Max Life Monthly Income Advantage Plan
The Max Life Monthly Income Advantage Plan offers 15 different plan options called variants.
These variants differ with the premium payment term and policy term.
The lowest policy variant is ‘6-Pay-16’—which means the premium payment term is 6 years and the policy term is 10 years. Whereas the highest is the ‘15-Pay-45’ policy variant. On completion of the premium payment term, the policyholder will start receiving monthly income until the end of the policy term.
The fundamental features of the policy are shown in the table below.
For a complete list of all the policy variants and other policy details, read the official policy brochure document here: Max Life Monthly Income Advantage Plan PDF.
Death Benefit of Max Life Monthly Income Advantage Plan
i) Lump-sum Benefit:
In case of the death of the policyholder during the policy term, the rightful nominee will receive a lumpsum as the death benefit.
The lump-sum payable on the death of the policyholder will be the higher of,
- 11x the annualized premium or
- 105% of the total premiums paid or
- The Guaranteed Sum Assured.
ii) Policy Continuance Benefit:
In case of the policyholder’s death during the premium payment term. The remaining premium payments will be waived off. The nominee will receive the monthly income benefits and the maturity benefits on policy maturity.
Monthly Income and Maturity Benefits of MAX Life MIAP
The monthly income from the Max life Monthly Income Advantage plan is calculated by taking 10% of the sum assured and dividing it by 12 (Monthly income you will get = 10%*Sum assured/12).
In case you are buying the Max Life Monthly Income Advantage Plan, you will receive the monthly income for the period from completion of the premium payment term till policy maturity.
If you survive the term of your Max Life Monthly Income Advantage Plan, at the end of the policy term, you may or may not get maturity benefit.
The maturity benefit will be the accrued Revisionary Bonus and terminal bonus.
Max Life holds the right to declare the revisionary bonus or terminal bonus. If no revisionary or terminal bonus is announced during the term of your policy, you will not receive any maturity benefit at the end of your policy term.
Also, your assured sum will already have been paid out to you in the form of monthly income payments that you get during the term of your policy. This payment will be made over a minimum of 10years, and it does not discount the present value factor.
The present value factor means that a future income of ₹ 1 is worth less than income of ₹ 1 in the present. So if you earn ₹ 1 five years from now, you discount this amount by a present value factor to calculate its value today.
In this case, the assured benefit that you will get over 10 years will be less in present value terms than if you had received the entire assured benefit today. Also, the interest rate used for compounding the revisionary and terminal bonus, if you get one, will not be guaranteed.
Max Life Monthly Income Advantage Plan Review With An Example:
Let’s say you are a 30-year-old buying the Max Life Monthly Income Advantage Plan.
The term of the policy is 25 years. The premium payment term is 15 years, i.e., 15-Pay-25. And the Annual premium is ₹1,00,000.
Your first-year premium will be ₹1,04,500 including taxes and other underwriting charges. From the second year onwards you will have to pay an annual premium of ₹100,000. The sum assured is ₹19,61,810.
From the 16th year onwards, you will start receiving a monthly income of ₹15,973.42. You will receive this monthly income for 10 years i.e., till the 25th year.
Tax benefits of Max Life Monthly Income Advantage Plan:
Under Section 80C of the Income Tax Act 1961, premiums paid upto ₹1.5 lakhs per annum are exempted from tax. Whereas, the maturity benefits or the death benefits are exempted under Section 10(10D) of the Income Tax Act 1961. It is the same as with any life insurance policy.
Analysis of Max Life Monthly Income Advantage Plan Returns
The table below shows the actual return rate from the Max Life Monthly Income Advantage Plan for the policy option chosen above.
Even though the policy benefits looked attractive, on doing the calculation, it is straightforward that the return rate is just 1.97%. For an investment of 25 long years, a 1.97% return is far below average and not worthy of any investor’s consideration.
In this calculation, non -assured maturity benefits have not been included in the calculation of this IRR because there is no certainty that you will get them.
In case revisionary bonuses and terminal bonuses are given by Max Life during the term of your policy, you will also receive ₹20,69,568 at the time of the maturity of your policy, assuming the bonuses are compounded at a rate of 4% p.a. But you should remember that compounding rate is not certain, and only assumptions.
Special Case Scenario1:
Suppose you died at the end of the 17th year, your nominee will receive a lump-sum amount as an insurance benefit. This lump-sum amount is likely to be equal to the assured benefit of ₹19,61,810.Your nominee will also keep receiving the monthly income of ₹15,973 for the remaining period.
Special Case Scenario2:
Now suppose you died at the end of the 8th year after taking the policy. So you died after paying only 8 annual premiums of ₹1 lakh. You had to pay annual premiums for 15 years. Still, your nominee will receive the full assured benefit of ₹1,91,681. The remaining premiums will also be waived off. And from the beginning of the 16th year, your nominee will also receive a monthly income of ₹15973 for the next 10 years.
Comparing Max Life Monthly Income Advantage Plan against PPF
In the previous section, we calculated that the IRR of the Max Income Advantage Plan is just 1.97%.It is a very low rate of return, even for an endowment policy.
Let’s say you invest the same amount, as the policy premium, in Public Provident Fund (PPF). The prevailing interest rate of PPF for Q3 2021 is 7.1%. An annual return rate of 7.1% is, in comparison, far better than the 1.97% of the Max Life Monthly Income Advantage Plan.
See the table below for the potential return from PPF for the same investment as in the Max Life Monthly Income Advantage Plan.
The more interesting things is that, PPF has an EEE tax status. It means that the investment, interest earnings, and the maturity value are completely exempt from income tax. Moreover, even though the interest rate is revised quarterly, the interest earnings from the PPF are guaranteed by the Govt. of India.
It is evident that the PPF is a better investment option compared to the Max Life Monthly Income Advantage Fund.
Comparing Max Life Monthly Income Advantage Plan against ELSS
If you invest the same amount in an Equity Linked Savings Scheme (ELSS) mutual fund, it can generate a return at a rate of 12% – 15%, or more in the long-term.
See the table below for the potential return from an ELSS mutual fund scheme for the same investment amount and investment period.
In the table above, the CAGR of the fund is assumed to be a conservative 12%. A better performing ELSS fund can give even better return in the long-term.
For the life insurance benefits that Max Life Income Advantage plan offers, you can buy a term insurance policy. The premium amount of any term insurance, for the same sum assured, will be much lesser than what you will pay in Max Life Income Advantage.
A term insurance policy is one where you are provided insurance cover for a given time period. If you die within this period, your nominee will get the life insurance benefit. If you survive the policy term, the policy will expire. You can renew the policy if you want.
By the illustration given above you can get the assured insurance benefit of ₹1,91,681 that you will get under the Max Life Income Advantage Plan, by paying a much lesser amount of premium if you buy a term insurance plan. With the savings that you make on the premiums, you can invest in PPF or an ELSS mutual funds to earn much higher annual returns. You will be overall much better off.
In the rare scenario of your revisionary and terminal bonuses getting compounded at 8%, your annual rate of return will be around 8.7%.
In this case, the rate of return will be higher than what you will get on PPF, but it will be lower than what you are likely to get if you invest in ELSS mutual fund.
Again, it needs to be mentioned here that there is no certainty of the interest rate at which the compounding of your bonuses will be done. There is even no certainty whether you will get a bonus or not.
Max Life Monthly Income Advantage Plan does not invest in equity. So it is highly unlikely that it will be able to generate a return of at least 8% on a continued basis.
Verdict: Should you buy Max Life Monthly Income Advantage Plan?
The clear answer to this question is No.
I believe the reason is obvious by now, but I want to reiterate.
From the investment perspective, you can earn a much higher return by investing in alternative investment instruments.
If you are a risk-averse conservative investor, you may consider investing in PPF. With a slightly better risk tolerance, you may choose to invest in an ELSS mutual fund.
If regular monthly income is your need, you can always set up a systematic withdrawal plan and get monthly income along with higher growth in the long term.
On the other hand, you can get a far higher life cover from a term insurance plan by paying a far lesser premium. Just as I stated earlier, Max Life Monthly Income Plan is a below-average investment option even for an endowment policy. It is better to avoid such policies.
But if you have already bought this policy, you can always surrender your policy and invest in better alternative options.
How to surrender your Max Life Monthly Income Advantage Plan?
Surrendering during the free-look period:
Max Life Monthly Income Advantage Plan has a 15 dayfree-look period. A free-look period is the number of days after you receive the policy in which you can return the policy without incurring any charge. In case you have bought the policy through any distance marketing channel your free-look period will be of 30 days.
Surrendering after the free-look period:
You can surrender your Max Life Monthly Income Advantage Plan any time you want.
You have to return the original copy of the plan with a written request for cancellation to Max Life Insurance.
Upon termination of the policy, Max Life Insurance will return the surrender value at the time of cancellation. It may include deduction of the proportional risk premium and stamp duty charges, and any other expense incurred on your medical examination.
Like the Max Life Monthly Income Advantage Plan, endowment insurance policies are abundant.
Despite their different policy structures and attractive names, their fundamentals are the same. Their return generating potential will also be the same.
Max Life Monthly Income Advantage Plan review showed that this policy is no exception. Always look for better investment instruments rather than nicely wrapped investment products.
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