LIC New Jeevan Nidhi Plan is a conventional with profits pension plan which provides for death cover during the deferment period and offers annuity on survival to the date of vesting.
The term vesting has been used extensively in the article. For simplification vesting can be assumed equivalent to maturity of policy.
LIC New Jeevan Nidhi – Eligibility:
The table below shows the eligibility for LIC New Jeevan Nidhi Pension Plan.
LIC New Jeevan Nidhi – Benefits on Vesting:
On Vesting you would get the basic sum assured along with accrued Guaranteed Additions, vested Simple Reversionary bonuses and Final Additional bonus, if any. This can be used for the following purpose only:
- To buy an immediate annuity plan from LIC or
- In case the total benefit amount is insufficient to purchase the minimum amount of annuity, then it would be paid as a lump sum or
- To purchase a Single Premium deferred pension product from LIC
The option needs to be selected at least 6 months prior to the date of vesting.
LIC New Jeevan Nidhi – Death Benefit:
Death during first five policy years: Basic Sum Assured along with accrued Guaranteed Addition shall be paid as lump sum or in the form of an annuity or partly in lump sum and balance in the form of an annuity to the nominee.
Death after first five policy years: Basic Sum Assured along with accrued Guaranteed Addition, Simple Reversionary and Final Additional Bonus, if any, shall be paid as lump sum or in the form of an annuity or partly in lump sum and balance in the form of an annuity to the nominee.
The amount of annuity will depend on the payable lump sum and the then prevailing immediate annuity rates.
LIC New Jeevan Nidhi – Riders:
Accident Benefit Rider: Accident Benefit Rider is available as an optional rider by payment of additional premium under regular premium policies. In case of accidental death, the Accident Benefit Rider Sum Assured will be payable as lumpsum along with the death benefit under the basic plan.
LIC New Jeevan Nidhi – Surrender Value:
The policy can be surrendered at any time after completion of at least 3 policy years but before the date on which annuity vests.
The Guaranteed Surrender Value will be as under:
- Single Premium Policies: The Guaranteed Surrender value is equal to 90% of the premium paid excluding extras, if any.
- Regular Premium Policies: The Guaranteed Surrender Value will be available provided atleast three full years’ premiums have been paid and is equal to 30% of the premiums paid excluding the premium paid for the first year and all premiums in respect of optional rider and extras, if any.
The surrender value shall be the guaranteed surrender value along with cash value of any accrued Guaranteed Additions and vested simple reversionary bonuses, if any.
How much Return can you expect?
You can expect following types of returns from the policy:
- Guaranteed Additions @ Rs.50/- per thousand Sum assured for each completed year, for the first five years.
- The policy is profit participating and hence would receive Simple Reversionary bonuses declared as per the experience of the LIC from the 6th year of policy.
- Final Additional Bonus may also be declared in addition.
You can check benefit illustration of LIC New Jeevan Nidhi at the LIC website here.
Here is some calculation on expected returns using the same assumption as on LIC Website:
- Age: 35 Years
- Policy Term: 25 Years
- Premium: Rs. 4121
- Premium Frequency: Yearly
- Basic Sum Assured: Rs 1 Lakh
- Vesting Age: 60
On maturity you would get following:
- Guaranteed Vesting Benefit (Rs 50 per 1000 sum assured for 25 years): Rs 1,25,000
- Simple Reversionary bonuses* (Rs 34 – 38 per 1000 sum assured for 20 years): Rs 68,000 to Rs 76,000
- Final Additional Bonus** (Rs 0 – 50 per 1000 sum assured for 1 year): Rs 0 to Rs 5,000
Total Amount at Maturity: Rs 1,93,000 to Rs 2,06,000
Annualized return: 4.54% to 4.98% per annum
* Simple Reversionary bonuses has been assumed from the Simple Reversionary bonuses declared for LIC Jeevan Nidhi for some recent years by LIC.
** Final Additional Bonus is assumed for calculation purpose and it might vary
Now you will need to invest this maturity sum to buy an annuity plan from LIC. At this time LIC Jeevan Akshay VI is the only annuity plan from LIC. So assuming today returns, if you invest the above amount for Life time annuity, you would get Rs. 18,060 – Rs 19,261 per year. And the amount which you would get from the annuity would be added to your total income and taxed according to your tax slab.
Simplifying the above, you would invest Rs 4,121 per year for 25 years and after that LIC would pay you Rs. 18,060 – Rs 19,261 per year for your lifetime.
This might sound good to some of you but you can get better returns by just investing in PPF and then buying annuity from the maturity amount.
Should you invest in LIC New Jeevan Nidhi?
I would not advise to invest in LIC New Jeevan Nidhi Plan on account of following reasons:
- The guaranteed return is less than 1.5% per annum
- Even when we realistically add all bonuses, the return is less than 5% per annum
- You can easily get these kind of returns by investing in PPF, Fixed Deposits or Debt Mutual Funds.
- Other than the above reasons, the maturity amount needs to be invested in LIC Annuity Plan. This might not be the best retirement plan and you would want to keep the flexibility of investing your maturity amount in Post office MIP or something similar.
- Also in case you need to surrender the policy, you won’t be able to recover your initial amount.
You might want to also consider NPS (New Pension Scheme) which has given better returns historically and at maturity you need to invest only half of proceeds in annuity plan. And you are also open to choose annuity plan from the market rather than only from LIC.