While it’s popular to say not to mix insurance and investments, crores of people still do that. I have no rights to comment on what the media or the people do. It’s not always a right or a wrong. I will attempt to figure out a holistic view while writing this review about LIC’s Jeevan Shikhar policy.
Taking LIC’s Jeevan Shikhar as a product let me review it on not just the returns but a few other factors too. I believe that any financial product is a composite of returns, taxes, liquidity, safety/guarantee and buying cost/distribution expenses.
What’s the LIC’s Jeevan Shikhar Policy?
LIC’s Jeevan Shikhar is a single premium plan wherein the risk cover is ten times of the premium and you can choose the Maturity Sum Assured. This plan also takes care of liquidity need through its loan facility.
In simple words, a 30 year old would pay a premium of Rs 42580.00 to get a maturity sum assured of Rs 1 lakh after the end of 15 years. He/She would get a insurance coverage of Rs 4.25 lakhs and can take tax benefits under Sec 80C now and a tax free maturity amount after 15 years. He or she can avail loans after 3 years and the money is pretty safe as Government of India gives you a sovereign guarantee.
Let’s start with the returns. (But don’t stop there 🙂 )
The premium is lower for a 10 year old and it increases as it reaches the upper age limit of 45. So a 10 year old pays Rs 39855 while a 40 year old pays Rs 51480 for the same Rs 1 lakh return after 15 years.
So the IRR will be 4.75% for the 45 year old, 5.86% for the 30 year old and 6.55% for the 10 year old.
Now the people who get 30% tax benefit, their outgo will come down to 70% of what they paid. So for a 30 year old, the outgo is Rs 29806 instead of Rs 42580. Their IRR will go up to 8.40%
Similar calculation for a 10 year will result in a IRR of 9.11%. For the 40 year old, it’ll be 7.27%.
The maturity amount that you get after 15 years will be tax free too under Sec 10D. (Caveat: That’s 15 year from now and we can’t predict any change in the laws)
Safety & Guarantee
LIC still enjoys the sovereign guarantee of the Government of India. Maybe they pay some costs by baling out the Government in the disinvestment process, but that’s another post!
In any case, the solvency margins are strong enough to be reasonable assured of the safety of your money in most Insurance companies.
The money that you put in is locked for the first three years. You can avail a loan facility after 3 years. You can get details of the loan and surrender rules here
While there is much hue and cry over the agents’ commissions in the media, I believe that the agents deserve their bread and butter for their efforts.
Having said that, I also believe that consumers can explore avenues where they can save money. If there are online platforms that saves you some money, please go ahead. This is already happening in the mutual funds space.
LIC’s online platform sells only two products now: 1. Term and 2. Annuity.
This product also covers the risk of untimely death and it’s 10 times of what you pay. The risk coverage for a 30 year old who pays Rs 42580 is Rs 4,25,800 from day 1 of the policy.
This may not be enough as we discussed in the article, mixing insurance with investments.
Loyalty Additions, Benefit Illustration & Miscellaneous
On their website, LIC also offers to pay loyalty addition but add a caveat that it’ll depend on the Corporation investment performance and is not really pucca. Infact for the 4% projected invesment return, they are not adding anything on their benefit illustration and keeping it Rs 100000 only.
Other rules of the product are:
a) Minimum Entry Age : 6 years (completed)
b) Maximum Entry Age : 45 years (nearer birthday)
c) Sum Assured on Death : 10 times of tabular single premium
d) Minimum Maturity Sum Assured : Rs. 100,000/-
e) Maximum Maturity Sum Assured : No Limit (Maturity Sum Assured shall be in multiple of Rs. 20,000/- only.)
f) Policy Term : 15 years
g) Premium payment mode : Single premium only
Apart from the factors outlined above, there is one more thing that I want to add. Even in this digital and information age, trust, relationships and convenience are important factors for any buying decisions.
While returns, taxes, etc are relatively tangible; trust, relationship and convenience can’t be quantified.
A holistic review of a financial product should factor in all the above things instead of focusing on just one aspect. For example, returns is a popular aspect, but not the only one.
Please share your views and how you review a financial product. Thanks for reading.
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