On March 1, 2012 Life Insurance Corporation (LIC) has launched a new Single premium life insurance plan – LIC Jeevan Vriddhi. Lets look at the product in detail and then decide if you should invest in LIC Jeevan Vriddhi
LIC Jeevan Vriddhi: Benefits
Maturity Benefit: On maturity, the Guaranteed Maturity Sum Assured along with Loyalty Addition, if any, shall be payable.
Loyalty Addition: Depending upon the Corporations experience the policy will be eligible for Loyalty Addition on date of maturity at such rate and on such terms as may be declared by the Corporation.
Death benefit: On death, Basic Sum Assured shall be payable. The Basic Sum Assured shall be 5 times the Single Premium excluding extra premium, if any.
Eligibility Conditions And Other Restrictions:
- Minimum Entry Age : 8 years (completed)
- Maximum Entry Age : 50 years (nearest birthday)
- Minimum Basic Sum Assured : Rs.150, 000
- Maximum Basic Sum Assured : No Limit
- Minimum Premium : Rs. 30,000
- Premium shall be available in multiples of Rs. 1,000
- Policy Term : 10 years
- Premium payment mode : Single premium only
- Guaranteed Maturity Sum Assured : The Guaranteed Maturity Sum Assured will depend on the single premium payable and the age at entry of the life to be assured.
Guaranteed Maturity Sum Assured:
Guaranteed Maturity Sum Assured for each age at entry per Rs.1000 Single Premium (exclusive of Service Tax) is as under:
Incentive For Higher Premium:
Incentive for higher single premium by way of increase in the Guaranteed Maturity Sum Assured is as under:
Loan facility will be available under this plan, after completion of one policy year.
The policy can be surrendered for cash after the policy has run for at least one year. The minimum Guaranteed Surrender Value allowable is equal to 90% of the Single premium paid excluding extra premium, if any.
Corporation may however pay Special Surrender value as applicable on the date of surrender provided the same is higher than the Guaranteed Surrender Value.
The Special Surrender Value will be the discounted value of the Guaranteed Maturity Sum Assured as on date of surrender.
LIC’s website has the illustrations where the Rs 1 lakh invested returns Rs 1,97,023 or Rs 2,21,651 at the end of the 10 year term. Take as look:
Understanding The Returns:
LIC Jeevan Vriddhi has been launched mainly for tax saving purpose.
So we look at your returns if you invest to save tax. If you are in highest tax bracket and invest Rs 1,00,000 for tax saving, you would save around Rs 30,000 as tax benefit. So effectively you invest Rs 70,000 on which you would be Rs 2,21,651 which is 100% tax free, so the net yield in this plan is more than 12%.
In the second case if you do not consider tax benefit your effective yield would come to 8%, which is not really attractive.
Also your return depends on your age at the time of investment. If you look at the graph below, you would realise the return falls down sharply after age of 35 – 36 years.
Essentially LIC Jeevan Vriddhi plan is good only if you are young and in the highest tax bracket.
Some Points of Caution:
- Calculate the benefit based on your age at the time of entry to the plan. It might not be a great plan for People with age more than 36 Years.
- Service tax @10.3% has been excluded from the calculations. So if you add the service tax, the returns come down to 11% from 12%
- If you don’t add the tax benefits, the returns come down to approx. 8 %.
- The loyalty addition is not guaranteed and will depend on LIC’s experience
- The tax benefits is as per existing laws. When the Direct Tax Code sets in from April, 2012, the tax benefit under Sec 80 C will go.
- The tax free maturity amount is an assumption under existing tax laws. That can change 10 years from now.
- Risk cover is only 5 times and may not be adequate.
Last and not the least – Go for something more simpler investments rather than such complicated products – Keep investments & insurance separate!
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