Modi government has launched series of Yojanas (Schemes) in last one year for the financial inclusion of the masses. With the launch of Pradhan Mantri Sneh Bandhan Yojana, they have taken it one step forward as you can gift insurance linked fixed deposit to your loved ones under this scheme.
What is Pradhan Mantri Sneh Bandhan Yojana?
Pradhan Mantri Sneh Bandhan Yojana is a combination of fixed deposit, Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeewan Jyoti Bima Yojana (PMJJBY) which can be gifted to anyone.
Pradhan Mantri Suraksha Bima Yojana (PMSBY) is Accident Insurance Scheme offering accidental death and disability cover for death or disability on account of an accident. It has sum assured of Rs 2 Lakhs and annual premium of Rs 12. Anyone in age group 18 to 70 years is eligible for PMSBY.
Pradhan Mantri Jeewan Jyoti Bima Yojana (PMJJBY) is Insurance Scheme offering life insurance cover for death due to any reason. It has sum assured of Rs 2 Lakhs and annual premium of Rs 330. Anyone in age group 18 to 50 years is eligible for PMJJBY.
How does it work?
The Sneh Bandhan is available in three denominations of Rs 201, Rs 351 and Rs 5001. This would be available in form of Gift Card or Banker’s cheque.
Anyone can buy this from their bank and gift it. The recipient needs to deposit the same in their account to encash the benefits. In case the recipient does not have a bank account he can either open a normal bank account or account under Jan Dhan Scheme.
The benefits vary with the value of Gift Card.
For Rs 351 the recipient gets one year premium for both PMSBY (Rs 12) and PMJJBY (Rs 330) and balance Rs 9 (351 – 330 – 12) in savings account.
The gift card once deposited would be used to buy PMSBY and PMJJBY for one year and Rs 9 would be credited to the recipients’ savings account.
For Rs 201 the recipient gets the PMSBY premium for 2 years (Rs 12 X 2 = Rs 24) and Rs (201-24 = 177) as amount in fixed deposit.
- Rs 12 would be paid as first year premium for PMSBY immediately
- Rs 12 would further be kept in the savings account to pay the premium for 2nd year
- Rest Rs 177 can be moved to the fixed deposit account for a term for 5 to 10 years. Assuming that it gets interest rate of 8% per annum, it would give Rs 14.16 as interest every year which would be enough to pay the premium for PMSBY (provided the premium is not increased in subsequent years).
So by gifting Rs 201 under Sneh Bandhan Yojana you would be gifting your loved one Accident Insurance of Rs 2 lakhs with coverage of 10 years.
For Rs 5,001, the recipient would get the following:
- 2 years premium for PMSBY and PMJJBY i.e. 2 x (12+330) = Rs 684
- Rs 342 would be used to immediately buy PMSBY and PMJJBY, while the 2nd year premium of Rs 342 would be kept in savings account.
- The rest amount Rs (5001 – 684 = 4317) would be deposited in fixed deposit for 5 or 10 years.
- Assuming that it gets interest rate of 8% per annum, it would give Rs 345.36 as interest every year which would be enough to pay the premium for both PMSBY and PMJJBY (provided the premium is not increased in subsequent years).
So by gifting Rs 5001 under Pradhan Mantri Sneh Bandhan Yojana you would be gifting your loved one both Accident and Life Insurance of Rs 2 lakhs each with coverage of 10 years.
- In case the recipient has already insured himself under both the schemes, the amount received can be used to pay premiums in subsequent years.
- One person can enroll only through one savings account in PMSBY and PMJJBY.
- Be careful to whom you are gifting. In case the recipient is more than 50 years or less than 18 years of age, he would not be eligible for PMJJBY. Similarly the eligibility for PMSBY is between 18 to 70 years of age.
- Banks would pay the prevailing interest rates on fixed deposit part. The tenure of FD can be 5 or 10 years.
- The scheme would be launched on August 1, 2015 (as a gift option for Raksha Bandhan) and then would be available throughout the year.
- The maintenance of desired balance every year to pay insurance premiums would be the responsibility of customers.
- The fixed deposit would follow the same rules of a normal FD with the bank and same rules of TDS and taxation would apply.
Pradhan Mantri Sneh Bandhan Yojana is one more step in encouraging financial inclusion through gifting. I am not sure how successful this product would be but seem to be well thought of and integrates the benefits of PMSBY and PMJJBY and Jan Dhan Yojana very well (though have some doubts of operational issues).
The problem might be what if someone receives multiple Sneh Bandhan gift cards? He can buy insurance using only one/two gift cards, the other gift cards would lapse or there would be provision to encash them?
I am not sure if I would gift this to my sister on Rakhee but it seems a good Diwali bonus option for domestic help and others who assist us day to day. This would at least cover them for some unforeseen circumstances.
You can check the notification issued by IBA to banks here.