A Guide to Monthly Income Plan

Diversifying one's investment portfolio is one of the most important factors to assure steady growth and accretion of profits. No single financial instrument is enough for an investor to allocate his funds.

MIP's, also known as Monthly Income Plans are hybrid instruments which invest one's funds (a small portion) in equities, while the remaining is invested in money market and debt instruments.

Many investors are under the assumption that a term insurance plan would be the best option; (if some misfortune was to occur) to help a person, in case their regular source of income suffers. However, this is not true. A term insurance plan will pay a lump sum in case of any disability or death of the person, which is most often quickly exhausted as it is used to meet the immediate family expenses.

There will be no future funds available for the family once this amount is exhausted. However, for MIP’s they involve the payment of funds to the family member/nominee as a 'fixed, monthly' income for a much longer period of time. This period can even go up to as many as 25 years. Thus, MIP's are most suitable for those people who want to rest assured with an alternative source of income (as a backup) for their regular income. It also works well for those people who retire and are seeking a guaranteed source of monthly income.

So, how do MIP's actually work?

Well, the policyholder will have to pay the premium amount on a regular basis to the company, throughout the premium payment term. At the end of this period, if the policyholder is yet alive, he will get a regular monthly income amount that is payable to him/her until the end of the policy tenure.  As soon as the policy tenure ends, then the insured will get a terminal bonus as well as simple reversionary bonus. The monthly income stops with the payment of these bonuses.

On the other hand, if the policy holder dies during the policy term than his/her nominee will be entitled to receive the regular, monthly income and premiums paid by the insured till his/her death. Once the tenure has ended, the nominee will receive the terminal bonus and simple reversionary bonus.

By opting for MIP's gives a person, a win-win situation. The insured will either get the survival benefit or the death benefit (as the situation may be).