In certain media and by few agents, it was widely advertised that LIC’s One Time Diamond Jubilee Bonus is 6%. This seems to be a big joyful news to sell LIC’s products. But the reality is something different.
In my last blog post “LIC Bonus Rates for 2016-17 – A Complete Report“, I explained the current bonus rate of LIC and also explained about the LIC’s One Time Diamond Jubilee Bonus. However, later on, a blog reader commented as below.
“One more ploy by LIC to revive lapsed policies under the garb of Diamond Jubilee Celebration!!!
God knows when people will understand that LIC plans won’t give them either risk cover or inflation-beating return. The problem is with the structure of these plans which are not transparent and are not in the long term interest of policyholders. These are “Na Ghar Ka Na Ghat Ka” plans as they say in Hindi.
Also, it is being rampantly advertised that LIC has declared 6% Diamond Jubilee Celebration Bonus. However, after going through the table, I realized that 6% bonus is applicable only for policies in force prior to 31-03-1986. (30 years completed policies which are very small proportion of LIC plans). However, LIC agents have already started misinforming gullible investors (as usual). What a shame!!!
These plans do not have any future and it would be better to stick to the combination of Term Insurance and Mutual Funds to generate long-term wealth.
Thanks for sharing.”
This prompted me to write a separate post as there is a huge possibility that few agents may misuse this LIC’s One Time Diamond Jubilee Bonus as 6%. However, the reality is totally different.
Check this media report with heading “LIC lines up bonanza for the faithful, 17 crore policyholders to get 6% bonus“. This is an eye-catching headline. This forces all readers to read the article fully. But later on, in the same article they wrote as “Life Insurance Corp. intends to dole out a bonus of up to 6% of the sum assured to policyholders this year on its 60th anniversary, a move that would help arrest sliding market share in the face of intense competition from private sector rivals and , a minor windfall for 17 crore policyholders.”
In the headline, they mentioned as policyholders to get 6% bonus. But in an article they mentioned as UP TO 6%. Many don’t notice the difference. Hence, the probability is high that LIC’s One Time Diamond Jubilee Bonus is actually 6%.
Also, there is a high probability that using LIC’s One Time Diamond Jubilee Bonus as 6% many agents may sell products saying LIC’s products are BEST to invest.
Hence, I thought to clear the dust through this post.
How much is the LIC’s One Time Diamond Jubilee Bonus rate?
Let us look at what is the rate of LIC’s One Time Diamond Jubilee Bonus for all policyholders and what are the conditions for the same.
Who are eligible for LIC’s One Time Diamond Jubilee Bonus offer?
Let us try to interpret the lines of LIC one by one.
# “The above One Time Diamond Jubilee Year Special Reversionary Bonus Rates shall be applicable for policies which are in force on the book of the Corporation as at 31.03.2016 by payment of full premium and eligible for regular reversionary bonuses and continuing in the books of the Corporation on or after 01.09.2016.
So, One Time Diamond Jubilee Year Special Reversionary Bonus shall not be payable to policies during free cover period if free cover period starts before 31.03.2016 even though policies are in force in such period.”
This means that if your policy is in force before 31-03-2016, then only you are eligible for LIC’s One time Diamond Jubilee Bonus. Also, if your policy is issued but in a free-look-in period before 31-03-2016, then you are not eligible for this special bonus.
# “One Time Diamond Jubilee Year Special Reversionary Bonus shall be decided in the same manner as simple Reversionary bonus rates are decided for the plan.”
This means bonus calculation is same as that of a yearly bonus for LIC policies. There is no special method.
# “Such bonuses (or their surrender value in case of surrender) shall be payable under policies maturing or becoming death claim or surrendered on or after 01.09.2016. The date of death or the date of receipt of application of surrender is to be taken to decide eligibility condition for One Time Diamond Jubilee Year Special Reversionary Bonus. The deaths occurring prior to 01.09.2016 and intimated subsequently, policies maturing before 01.09.2016 and settled after 01.09.2016 and surrender applications received prior to 01.09.2016 but pending or settled on or after 01.09.2016 are not eligible for this One Time Diamond Jubilee Year Special Reversionary Bonus.
Further, One Time Diamond Jubilee Year Special reversionary Bonus shall not be payable for policies discounted back prior to 01.09.2016.”
This means if you surrendered or applied for death claim 01-09-2016, then you are not eligible for this special bonus. Policies maturing before 01-09-2016 are also not eligible for this special bonus.
# “The policies which are in paid-up condition or are lapsed without acquiring paid-up value as at 31st March, 2016 shall also be eligible for this One Time Diamond Jubilee Year Special Reversionary Bonus provided they are subsequently revived for full sum assured and otherwise eligible for reversionary bonus as per terms and conditions of the policy.”
If your policy is in paid up condition or lapsed before 31st March, 2016 then also you are eligible for this special bonus. But to avail this bonus, you MUST revive your policy.
# “The One Time Diamond Jubilee Year Special Reversionary Bonus is not payable to without profit policies, the policies under which guaranteed additions have been added during the inter-valuation period and policies under which loyalty additions are payable as per terms and conditions of the plan.”
Therefore, if your policy offering you guaranteed addition (GA) or Loyalty Additions (LA) and if it is without profit policy (like Term Insurance), then you are not eligible for such special bonus.
LIC’s One Time Diamond Jubilee Bonus offer is an eyewash?
In my view YES. Let us see my claims one by one.
- Look at the 6% bonus eligibility. The policies which are more than 30 years old are only eligible. The policies which are more than 30 years old are rarest of rare in numbers. Many policy terms are usually 15, 20 or maximum 25 years. Hence, you may be eligible for 3.5%, 2.5%, 1.5% , 1% or even 0.5%.
- This is not payable to you immediately. Remember the biggest myth about this bonus. Even if you are eligible to receive 6% one-time bonus, LIC will not pay you this amount immediately. It will be considered for payment only at maturity or death claim. Hence, as usual, this bonus will remain with LIC without adding a single rupee to it additionally till the maturity or death claim of policy. Hence, where it comes the claim of 6% or 5% special bonus??
- Many missed to understand the eligibility of this bonus. This bonus is not eligible for those policies who offers guaranteed addition (GA) or Loyalty Additions (LA) and if it is without profit policy (like Term Insurance). Hence, the eligible policies again reduced to few.
Considering all these, I don’t think it is a great news to cheer up that LIC’s One Time Diamond Jubilee Bonus declaration is a great event and we must buy more and more policies from LIC to avail future such benefits.
Nothing has changed and nothing will change to you. Returns of LIC’s traditional policies continue to fetch you as usual 5% to 6% returns. Hence, calm down and think seriously about your existing investment in such LIC’s traditional plans.
Remember-It is not the fault of LIC, but the fault of us who interpret the features wrongly for our own benefits.