It is common practice by almost all agents to sell the products which they actually know. But I noticed during my search for LIC’s plans that Whole Life plans are I think untouched or neglected plans. Hence thought to give inputs how well they are and what are the drawbacks of these plans. First let us look at it’s feature.
In LIC’s whole life plans their are two variants. One is the plan where you need to pay throughout your life span. Another is called Limited Payment, where your premium paying is restricted for few years only (like 15,20,25,30 and 35 yrs). Below are the few important features of these two plans.
|Whole Life-Premium Payment throughout life||Whole Life-Limited Payment|
|Min. Age||15 Yrs||12 Yrs|
|Max. Age||60 Yrs||60 Yrs|
|Max Maturity Age||80 Yrs||80 Yrs|
Maturity Benefits-Under first variant, policy get matured after the policy holder attaining the age of 80 yrs or after the completion of 40 yrs from the commencement date of policy. For second variant, policy will get matured after the policy holder attaining the age of 80 yrs. In both cases you will get Sum Assured+Accrued Bonus+Final Additional Bonus. One more benefit offered is, if policy holder can postpone his/her maturity proceeds later dates too. In that case he will continue to enjoy the benefit of available bonus rate till he takes back the maturity proceeds.
Death Benefits-If death occurs during the period of policy term then nominee will get Sum Assured+Accrued Bonus till the date+Final Additional Bonus.
Now the positive points of this plan are, lower premium compare to other LIC’s plans and enjoys the highest Bonus rate. So automatically you can enjoy high returns than other plans. Let us take example of 30 yrs old person who opt for limited payment 35 years. I took 35 years because in this plan maturity will be at policy holder’s 80 yrs of age. So instead of paying high premium better to lower it and opt for higher Sum Assured. Sum Assured I opted is Rs.25,00,000 and the yearly premium for him will be Rs.66,375.
Let us look at returns how much he can get if he attains the age of 80 yrs. Overall he pays Rs.23,23,125 for the whole 35 yrs of premium paying period. Maturity amount he will receive will be Rs.25,00,000 (SA)+ Rs.87,50,000 as Bonus (Calculated at the current rate of Rs.70 for SA of Rs.1,000)+Rs5,62,500 Final Additional Bonus (Calculated at current FAB for more than 25 yrs term policy and SA more than 2 lakhs which is Rs.225 for SA of Rs.1,000). So total he will receive Rs.1,18,12,500. Overall IRR (Internal Rate of Return) workout to be 4.71%. Now few may say who will live till the age of 80 yrs.
Suppose if he lives only till the age of 60 yrs ( I considered 60 yrs because most term plans maximum maturity age is 60yrs) then from his current age of 30 years to his age of 60 yrs he will pay Rs.19,91,250. If we consider his untimely demise in that year means his nominee will get Rs.25,00,000 (SA)+ Rs.52,50,000 Bonus (Calculated at the current rate of Rs.70 for SA of Rs.1,000)+ Rs.5,62,500 as Final Additional Bonus (Calculated at current FAB for more than 25 yrs term policy and SA more than 2 lakhs which is Rs.225 for SA of Rs.1,000). So totally his nominee will receive Rs.83,12,500. In this case IRR works out to be 8.54%. So infact this shows good returns than the 80yrs of maturity returns.
So compare to other traditional plans and when you are buying insurance with the sole intention of creating some corpus for your dependents then it is best to park few % of your portfolio into this plan. Eventhough returns looks low, in first case it is 4.46% (probability of attaining 80yrs of age less :))and in second case 8.54%, but when you are looking for secured returns with bit of life risk cover then better to park here. This plan also holds good for few people who think Term Insurance as waste product where you will not get anything in return during the life time and in case of death only SA. Hence I recommend you to have this high Bonus plan for creating wealth for your dependent. But as usual I am cautioning not to park all investment into this product instead some % of your portfolio. Happy Investing 🙂