LIC, much like in the past, have started rolling new products in the last few months of financial year. This time it has launched a deferred traditional pension plan LIC New Jeevan Nidhi. Although, changes in pension plan norms by IRDA have deterred many private companies to enter in this market, LIC has continued with its trend. The new product very well complies with these norms and so is assumed to be more cost effective now. But traditional insurance plans have been in the news for their lower returns and so it will be wise enough to review LIC New Jeevan Nidhi before making a decision.
Below are the new norms which IRDA has stipulated in pension plans-
- A pension plan may have a life insurance cover i.e. the option to include rest with the company
- There has to be a minimum guarantee in the plan for death benefits or surrender
- The policyholder will have to compulsory buy the annuity from the same company
Let see how LIC Jeevan Nidhi fares after meeting these criteria.
LIC New Jeevan Nidhi – Basic Features
|Minimum Entry Age||20 yrs|
|Maximum Entry age||60 yrs|
|Minimum Vesting age||55 yrs|
|Maximum Vesting Age||65 yrs|
|Minimum SA||Rs 10000 for regular premium|
|Rs 15000 for single premiums|
|Maximum SA||No Limit|
|Policy term||5-35 yrs|
|Premium Payment||Monthly/Qrtrly/Half Yrly/Yrly/Single|
|Rebates||1-5% as per mode of premium or SA limit|
Benefits Payable in LIC Jeevan Nidhi
|Payable to Policyholder/Nominee||Options to the Policyholder/Nominee|
|On Vesting||SA + Guaranteed Additions + Revisionary Bonus + Final Bonus (If any)||1. Purchase an Immediate Annuity2. Purchase a new single premium deferred pension plan|
|On Death||First 5 years- SA + Guaranteed AdditionsAfter 5 years- SA + Guaranteed Additions + Revisionary Bonus + Final Bonus (If any)||1. Lumpsum2. Annuity3. Lumpsum & Annuity|
Guaranteed Additions– LIC has kept guaranteed additions only for first five years and at the rate of Rs 50 per thousand in Jivan Nidhi
Bonuses- Since there is guaranteed additions for first five years, the bonus i.e. participation in profits starts from 6th year and paid as per the policy terms
Surrender Value in case of LIC New Jeevan Nidhi
LIC, much like in other products, offers here also either a Guaranteed Surrender value at 30% of all paid premiums or a higher special surrender value as per its discretion. The only difference in this product is that guaranteed additions are also paid along with this surrender value and the company gives an option to the policyholder to utilize these proceeds to purchase an annuity (Immediate or Deferred).
What You Actually Earn in New Jeevan Nidhi ?
The net returns in traditional products are lower or at best equals inflation due to the cost associated. In this product also the net yield to investors is not very high which is surely a deterrent for accumulating a good corpus.
IRR as per LIC New Jeevan Nidhi Illustration
Annuity – Final Destination
Since the new norm specifies that the annuity will have to be purchased from the same company, LIC has illustrated the annuity received by any policyholder on basis of today’s rate.
To Learn More about Annuity Concept Read: LIC Jeevan Akshay VI – Immediate Annuity Plan
Annuity payable for life based on above illustrated corpus at vesting age
|Corpus||Annual Annuity Payable|
These are the current annuity rates of LIC immediate annuity product Jeevan Akshay VI
|Yearly annuity amount under option|
|( i )||( ii ) (15 years certain)||( iii )||( iv )||( v )||( vi )||(vii)|
Should you Consider LIC New Jeevan Nidhi?
The product fails to attract due to below facts:
- The net return to the policyholder is not even matching inflation of 7% which has been the case with most traditional products. Isn’t it a much higher risk than investing in equities through SIPs where you are able to generate returns higher than inflation? Now a product like NPS have much higher flexibility and possibility of generating superior returns when compared with any traditional pension plan.
- The annuity rates will change and there may be companies which may offer higher. You would like to avail the maximum and so a boundation from the same company may end up with dissatisfaction in later years.
- The annuity rates shown in the tables consider that the pension is given to the policyholder only and no return to the nominee/spouse after his/her death. These will lower down if any such option is availed. Also, these rates are higher at higher age and so any selection of lower vesting age will lower the annuity amount substantially.
- Higher life coverage add to the mortality cost. If one has a term insurance then this feature actually is an additional expense one is paying to lower the accumulation.
- To differentiate the product from other companies, LIC has introduced many options like buying another deferred pension plans even from the surrender value. All such options fail to attract when the accumulation is not enough to meet the retirement years growing expenses.
Retirement years are golden years of life where you aspire not to work and spend more time in social activities or with grand-children’s. For this achieving financial independence is very important and it very much hinges on how much you are able to accumulate for your post retirement needs. A long deferred period needs the exact identification of the requirement first. Then only you can evaluate an alternative to see whether it matches yours needs. LIC is surely the brand name but weigh your options efficiently before you get attracted to the fancy names of any product.
Review of LIC Jeevan Nidhi is done by Jitendra PS Solanki, CERTIFIED FINANCIAL PLANNERCM – the views expressed herein are the author’s personal views.
If you have any questions related to pension products or any other insurance policy – feel free to add in comment section.