Protecting lives of over 250 million people, Life Insurance Corporation is one of the oldest and a widely trusted insurance provider in India. Every family has bought one or the other plan of LIC and that’s how they have touched million of lives and have ingrained the idea of long term savings. They have launched more than 200 plans since inception but one of their most captivating plans is the ‘New Jeevan Anand 815 Plan.’
So, let’s first understand the salient features of this policy.
Key Features :
1. Type of Plan :
New Jeevan Anand is a participating Non- Linked Whole Life Endowment plan which means the policy continues to provide coverage to the insured even after the maturity of the policy. The participating nature of this plan means the policyholder is eligible to get reversionary and final bonuses as and when declared by the company. These are not guaranteed and are declared basis the company's performance.
2. Maximum Maturity Age : 75 years.
3. Policy Term :
Minimum of 15 years to a maximum of 35 years.
4. Sum Assured starts with a minimum of Rs. 1 lac and there is no upper limit on the same.
5. Modes of Payment :
Single premium payment is not permitted in this plan. The payment mode could be chosen as monthly, quarterly, semi-annually or annual basis as per your convenience.
6. Accidental Death & Disability Benefit :
An optional accidental death and disability rider benefit can be availed by paying additional premium. Minimum sum assured for this benefit is Rs. 1 lacs and can me max upto Rs. 1 crore. This rider benefit can be availed by individuals aged between 18 yrs to 70 years. Also, this benefit will only be applicable till 70 yrs of age or end of policy term whichever is earlier. Additional accident benefit sum assured will be paid in case of death due to accident during the policy term. In case of permanent disability due to an accident, Accident benefit sum assured amount will be paid but in monthly installments.
7. Free Look Period :
A policyholder can cancel this policy within 15 days of issuance if he is not happy or for any other reason.
8. Grace Period :
In case the policy holder delays the premium payment, a grace period of 30 days after the due date is allowed to renew the policy.
9. Policy Revival :
In case he fails the policy will lapse but could be revived within two years after paying all the dues.
10. Loan Facility :
Loan can be opted on the surrender value given that the premium has been paid for three continuous years.
11. Surrender Value :
If the policy gets discontinued during the first two years, then there is no surrender value. Policy is eligible for Surrender value provided that premiums have been paid for three years. Surrender value is % of total premium paid. This data is available in policy document.
Policy Benefits :
1. Death Benefits :
If the policyholder dies during the policy term, the death benefit includes 125% of the basic sum Assured + Accrued Bonus if any.
In case of death of life insured after the maturity of the policy term, the nominee/beneficiary gets only basic sum assured.
During any time in the first year, if the policyholder commits suicide, only 80% of the premiums paid is given to the nominee as death benefit.
2. Maturity Benefit :
Since this is a participating policy, in case the life insured survives the entire tenure of the policy term, he is paid Basic Sum Assured + Simple Reversionary Bonus + Additional Bonus if any.
3. Tax Benefits :
Premium paid for New Jeevan Anand policy is eligible for tax deduction under section 80C. Maximum exemption of Rs. 1.5 lacs can be availed.
Maturity benefits has no tax implication u/s 10 (10D). Also, death benefits are free from any tax liability.
However, the surrender value will be taxed under “Income from other sources and the tax rebate u/s 80C for previous years gets reversed if you have not paid the policy premiums for at-least two years.
New Jeevan Anand Policy Illustration :
Rahul is 30 years old. He buys LIC New Jeevan Anand Policy for a Sum Assured of Rs. 5 lacs with a term of 25 years in the year 2018. The yearly premium is Rs 23,375.
Scenario 1 : If the policy holder survives the policy term
Note : The projected rate of return is not guaranteed. Future bonus will depend on the profits generated.The bonus amounts are based on the actual values for past years as declared by LIC. The future bonus rates are assumed to be the last year's declared bonus rate. There might be a chance that the future bonus rates will not match the ones assumed here.
Scenario 2 : If the policy holder dies during the policy term
If Rahul dies before the maturity of the policy. His nominee will get the sum assured of Rs 500,000.
What are the merits of the plan ?
1. Longevity :
The Life cover remains intact even after the policy gets matured which makes it tempting like their slogan “Zindagi ke saath bhi zindagi ke baad bhi”. The plan propels to save more and for long term.
2. Participation in the Profits :
The bonus gets accrued on the basis of profit generated by LIC. On survival, the simple reversionary bonus plus the additional bonus are paid which tempts the customer to buy the policy.
3. Relaxed Procedure :
Buying the policy is real quick and in some cases even medical test is not required. For those with pre-existing diseases could get life cover without too much hassle.
4. Ease of payment :
Flexible mode of payment makes it attractive for buyers. All the more, lapsed policies can be revived within two years by paying full dues.
5. Add on Benefits :
Features like Disability and Accidental Death Rider frame a perfect combo which appeals customers just like the loan facility on the surrender value. The tax benefit on the premium paid and maturity value is another bonus.
Reasons for Dislike :
1. Time value :
The story of sharing profits, additional bonus and life cover after maturity looks too good to be true. Imagine what would be the worth of Rs 11.39 lacs (refer illustration above) in the year 2038. When you hold investment for long term, rising cost of living & inflation is a bigger risk as much of your wealth gets eroded. If you can’t beat inflation of about 6-7%, than you really need to have a second look on your investment. Am afraid, this plan barely even manages to beat inflation.
2. Transparency :
One big thing which I find unsatisfactory about these traditional plans is they don’t disclose the whereabouts of the money invested. There are products in market like mutual funds which disclose which bonds, debentures, shares, and company deposits they are investing in and in what proportion. So I am really interested in knowing where is my money going?
3. Insufficient life cover :
There are different ways to calculate the human life value and how much life insurance cover you should buy. One of the most common rules is the Income Multiple method, which states that the life cover should be at least 10-12 times the annual income of the individual.
For instance :
Mr. Rahul, age 30 is a software engineer with annual income of Rs 500, 000. As per Income Multiple rule, he should atleast have a life cover of Rs. 50 lacs as sum assured. Under New Jeevan Anand policy, the annual premium required to be paid for this cover will be Rs. 223,700/-. He will need to pay this premium for a period of 25 years.
The question to ask here is would he be able to afford that premium with an annual income of Rs. 5 lacs? I doubt that. He will mostly opt for a lower life cover and sum assured so that he can afford the premium and thus, leading himself to be highly under-insured. On the contrary, a term insurance would cost him about Rs. 6000/- per annum for the same amount of Rs. 50 lacs life cover and the rest of the money which is Rs 2.17 lacs can be saved in a better return generating asset class like mutual funds.
4. Low returns :
Historically, returns have been in the range of 4-7% for these plans. This is the exact reason why people have started dumping traditional plans and moving towards asset classes making higher than inflation adjusted returns. An ideal investment return should beat the personal inflation rate by at least 2 – 3% to optimize the value of money. Am really afraid to say that but the truth is that these plans do not even beat inflation.
5. Liquidity issue :
Trust me when it comes to redeeming these policies, it becomes very challenging. Firstly, you have to wait for at least three years to be eligible to get the surrender value. Secondly, if you liquidate between 3-10 years, the surrender value + vested bonus comes in the range of 55%- 70% of the total premium paid. So, not only it is really troublesome to exit the policy you also lose some value from your paid premiums.
MoneyUncle Takeaways :
To sum it up, Insurance and Investment/Savings are two separate concepts. They are two parallel lines which can never meet. If you chase one, you lose another and vice versa.
So, if you want proper protection of life with adequate cover, then buy an Insurance plan not with the intention of getting your paid premiums back. It is such an easy thing to fall into this trap, since our mind would always want to get our money back even at the cost of getting lesser returns.
Though we recommend our readers to ‘Stay Away’ from these kind of plans. But in few cases this policy might make sense. For example retired individual or somebody with existing illness who will not be able to get Term insurance cover can opt for Jeevan Anand plan. If not otherwise you ‘Don’t Need to Invest’ your hard earned money into New Jeevan Anand policy.
Our ‘recommended strategy’ is to opt for Term Life Insurance cover for adequate life protection and to invest rest of your money into inflation beating products like diversified mutual funds & balanced funds.
This advice post has been written by Raj Awasthi, Certified Financial Planner, Kalpataru Wealth Solution & MoneyUncle Research team.
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