We are in the last month of Financial Year 2012, and once again LIC has come up with a new plan with name LIC Jeevan Vriddhi. And once again just with the announcement of launch queries are raining.
- “I want to know your opinion (merits and demerits) on Jeevan Vriddhi launched by LIC. I will be really grateful to you for your reply.” Mayank
- “What about LIC Jeevan Vridhi, can I invest some amount in that?” Vishal
I don’t understand that why people get so curious about products launched by LIC. Even if the product with different name and with different company is already there in the market, but if LIC has come up with it then people feel “there must be something special”. And moreover when a product by LIC comes up with a word called “GUARANTEED”, excitement gets doubled – limited period offer always excites people so this will LIC Jeevan Vriddhi will be closed before 31st May 2012. Let’s see how this plan looks like & should you put your hard earned money in it. Read – What is Insurance?
LIC Jeevan Vriddhi Plan – Review
LIC Jeevan vraddhi is a single premium payment plan which offers a guaranteed maturity amount plus Loyalty additions if any at the time of maturity. The insurance cover would be 5 times of the premium amount. (Review of LIC Jeevan Ankur)
Basic Features of LIC Jeevan Vriddhi
- Person between age group of 8-50 years can apply for this plan.
- Minimum Premium Rs 30,000/- thus minimum sum assured would be Rs 1,50,000/-
- There’s no cap on maximum premium payment.
- Policy term is 10 years , but this policy can be surrendered after 1 year.
Other benefits of Jeevan Vriddhi
The major feature of this policy is that it offers guaranteed maturity benefit which depends on the age at the entry and premium paid at the time of purchasing the policy plus
The loyalty additions if any which depends on the corporations experience with the policy. Also the rate and terms will be declared by the corporation, that too at the time of maturity.
INCENTIVE FOR HIGHER PREMIUM in LIC Jeevan Vriddhi
Incentive for higher single premium by way of increase in the Guaranteed Maturity Sum Assured is as under:
Tax benefits on Jeevan Vriddhi LIC
As the sum assured is 5 times the annual premium , so right away as per current income tax laws the policy gets eligible for Section 80C benefit and also the maturity will be tax free as per Section 10(10)d. (Read Year End Tax Planning Guide)
Let’s do some MATHS – LIC Jeevan Vriddhi Policy?
Certainly on the face of it LIC Jeevan Vriddhi looks quite attractive, but when it’s a question of finances one should be double careful. Let’s see what guarantee they are actually offering. I am sure that you are interested in guaranteed maturity benefit and not in the loyalty additions which may or may not be declared. Below is the illustrative chart as on the website of LIC which clearly shows the guaranteed maturity value one will get by investing Rs 1000/- in this plan. I have added 2 more columns just to get the actual premium outgo after adding Service tax and what would be the annualised yield at the time of Maturity.
The above table clearly shows that like any other endowment policy, this plan also is generating return in the range of 4%-7%.
Now let’s look at the illustration which shows the variable part also, i.e. loyalty additions
The above illustration is exclusive of tax, but your premium will be inclusive of tax. So we need to calculate returns on with tax premium which comes out to be Rs 30463/- ( @1.545% service Tax). Thus with the guaranteed maturity value of Rs 58665/- the annualised return comes to 6.77% , and with assumed variable return maturity benefit of Rs 65998/- the annualised return coms to 8.03%.
In this case your Premium inclusive of tax will be Rs 101545. And annualised returns will be 6.85% Guaranteed and @ 8.12% NON Guaranteed.
Should you invest in LIC Jeevan Vriddhi
We are always of the opinion that whatever financial decision you make should support the overall financial goals and thus for the betterment of Finances. You should always keep 3 points in mind before zeroing onto any policy
1. There should be a proper reason attached to any of your financial product purchase.
You may want to attach reason for doing tax saving or investment with this product. If you invest in this for tax saving then the annualised return will improve as the net outflow from your side will be less, but this product is not looking suitable for investment purpose as the returns are just at par with average inflation rate. Even if talk about insurance it’s just 5 times of premium.
2. Besides return you should also be aware of the risks associated.
- Inflation risk. As this product is not offering that much return which can beat inflation.
- Taxation risk: Pls keep in mind that the proposed Direct tax code provisions of taking sum assured equals to at least 20 times the annual premium , only then that policy will be non-taxable at the time of maturity. As the DTC is yet to be announced and this policy has 10 years term so ambiguity is still there.
- Opportunity Risk: 10 years is a very long time. You may get very good returns if you invest in equity related instruments for this much time frame. If you or your advisor knows how to invest in duration funds then you can take advantage of debt funds also. (Read – Types of Risk)
3. You should be aware of all the alternatives to decide better
There is alternative for everything like for tax saving there are many other options available like ELSS, 5 year fixed deposit, National savings certificate etc., for investments also there are many options and even in this policy category (guaranteed maturity benefit) there are many options like ICICI I Assure single plan, Birla sun life Rainbow fund, Bajaj Allianz guaranteed maturity investment etc. My advice is not to mix investment with insurance.
I hope I have empowered you with enough calculations, reasons to invest or reject LIC Jeevan Vriddhi. Now better take informed decision and that too for the betterment of your finances.
Review of LIC Jeevan Vriddhi is done by Manikaran Singal, CERTIFIED FINANCIAL PLANNERCM - the views expressed herein are the author’s personal views.If you have any questions related to LIC Jeevan Vriddhi or any other life insurance policy – feel free to add it in comment section.