LIC is going to launch one more new plan on 1st September 2014. However, this time it is a close ended plan. This is a single premium and money back plan. Let us look for its feature and benefits.
As I said earlier, this plan is a close-ended plan, which opens from 1st September 2014 to the maximum period of 90 days. It is non-linked, with profit, single premium, and money back policy. Below is a graphical representation of this plan feature.
In this plan, you have the option to choose a maturity sum assured. Based on this MSA and age of proposer single premium will be payable.
Who are eligible?
- Minimum Age at entry is 8 Yrs.
- Maximum Age at entry is 45 Yrs.
- Mode of Premium Payment is only single.
- Minimum Maturity Sum Assured (MSA) is Rs.60, 000.
- There is no maximum MSA limit under this plan.
- Policy Term is 12 Years only.
- Mode of Payment is Single.
What are the death benefits of this plan?
- If death occurs during first 5 years of policy period then you will receive the Basic Sum Assured (which will be around 10 times of your single premium you paid).
- If death occurs after 5th year, but before 12th year, then you will receive the Basic Sum Assured (which will be around 10 times of your single premium paid) along with Loyalty Addition.
Please note that the premium to arrive at Basic Sum Assured will not include the taxes you paid, any extra premium and is before applying rebate.
What are survival benefits of this plan?
- At the end of 10th policy period, you will receive 15% of Maturity Sum Assured you opted.
- At the end of 11th policy period, you will receive 20% of Maturity Sum Assured you opted.
What will be the maturity benefit?
On maturity, you will receive remaining 65% of Maturity Sum Assured along with Loyalty Addition.
What is Surrender Value of this policy?
- If you planned to surrender in first year then 70% of your single premium will be payable (excluding extra premium and taxes).
- After that 90% of the single premium, (excluding survival benefits any paid, extra premium and taxes).
- Along with this, you can avail special surrender value, which will be discounted factor of Maturity Sum Assured less of any survival benefits paid.
Can you avail the loan?
Yes, you are eligible for loans under this plan, but the values are as below.
- If within 2nd to 3rd year, then you will get 50% of Surrender Value.
- If within 4th to 6th year, then you will get 60% of Surrender Value.
- If within 7th to 9th year, then you will get 70% of Surrender Value.
- If within 10th to 12 years, then you will get 90% of Surrender Value.
Age 8 Yrs MSA Rs.1, 00,000=Rs.50,880.
Age 20 Yrs MSA Rs.1, 00,000=52,390.
Age 25 Yrs MSA Rs.1, 00,000=Rs.52,803.
Age 30 Yrs MSA Rs.1, 00,000=Rs.53,736.
Age 35 Yrs MSA Rs.1, 00,000=Rs.56,019.
Age 40 Yrs MSA Rs.1, 00,000=Rs.61,380.
Age 45 Yrs MSA Rs.1, 00,000=Rs.74,106.
Below is the automated calculator, which you can use to arrive at return from this product. You need to enter the premium (in negative) you will be paying and MSA opted. Values in green only to be keyed.
Whether to buy this plan or not??
This is typical non-linked traditional plan. Let us consider a person aged 25 Yrs and planning for Rs.1,00,000 MSA. So he need to invest Rs.52,803. After 10th year he will receive Rs.15,000 (15% of MSA). We re-invest this for two years to match with maturity at current SBI FD rate of 9%. This will fetch him Rs.17,821 (at end of 12th policy year). After 11th year he will once again receive Rs.20,000 which we again re-invest but for only one year at same current SBI rate for 1 Yr. This will fetch him Rs.21,800 (at end of 12th policy year). So overall return will be Rs.17,821 (10th year MSA%)+Rs.21,800 (11th Yr MSA%)+Rs.65,000 (65% of MSA)+Rs.30,000 (LA @ Rs.300 per Rs.1,000 MSA)=Rs.1,34,621. Return on investment will be 8.11%.
Assume the same Rs.52,803 invested in Bank FDs at current SBI FD rate 8.77% for 10 Yrs (maximum tenure available for FDs). At the end of 10th year return will be Rs.1,22,445. If the same is invested in SBI FD for another 2 Yrs (to match this plan tenure of 12 Yrs) at current rate of interest at 9% then the maturity value will be Rs.1,45,476.
So I still feel simple Bank FD can beat this plan’s return easily. However, in both comparisons there are few risks and assumptions, which I have listed as below.
1) LA rate assumed at Rs.300 per Rs.1,000 MSA.
2) Interest rate calculated based on current rate. Therefore, we do not the future trend.
3) Taxation part is neglected. Even though this plan offering you tax-free kind return but bank FDs return are taxable according to one’s tax slab.
Also when one looks at premium chart it seems that for younger buyers the premium is very less like 8 Yrs of age Rs.1,00,000 MSA premium is Rs.50,880 but at the same time for 45 Yrs old the same MSA premium will be Rs.74,106. This seems that if you want to enter into this plan then better to invest in the name of younger member of family.
So one need to treat this plan purely as a one time investment with return around 7% to 8% maximum. However, do remember that waiting for 12 long years and satisfying with 7% to 8% is not a prudent investment strategy. Because this plan returns almost matches the current inflation rate. Therefore, when we consider real return then this investment seems not worthy.
However, at the same time if you are looking for an investment of one time with return expectation of around 7% then definitely go ahead.