A common policy offering is to offer annuity, or some form of pension, for life.
Assume this policy was being offered to a person whose age is 25 years, and expected to live till the age of 80. By 2076, they’re supposed to reach this age.
Now we’d tweak the policy to offer payout of ₹100,000 every year (same as premium payment), for life (which essentially means up to 1st Jan 2076), starting on same schedule as before, i.e. 1st Jan 2041.
This can certainly improve the XIRR from original scenario of 3.52% p.a., but by how much? Notice that we’ve halved the payout amount as well.
It can be verified that XIRR of this policy is 4.22% p.a.
What if this person lives up to age of 90, another 10 years, and collects annuity of ₹100,000 per year for 10 more years?
Verify that XIRR of this final updated policy would be 4.53% p.a.