Many of us trapped in typical endowment life insurance plan. But finding it hard to calculate LIC policies maturity amount on our own. Let us simplify this.
Long back, I wrote a post “LIC Policies-How to calculate returns?“. In that post, I explained about the meaning of bonus, Guaranteed Addition, Loyalty Addition and Final Additional Bonus. I also explained about how to consider and calculate each part.
But I felt that many readers not able to understand how to arrive at return % from this investment (sorry to say so as an investment for insurance product). Hence, thought to write purely on how to calculate the return from your typical traditional life insurance products.
Here I am using the Excel tool to calculate the returns. The function what I will use is IRR (Internal Rate of Return).
What is IRR (Internal Rate of Return)?
I will not use those confusing financial words. Instead, you can say that it is the excel sheet function used to calculate the return on your investment when you make some investments in periodic ways. For example, you pay an insurance premium regularly (either yearly, half-yearly, quarterly or monthly) and at the end, you receive the amount from an insurance company.
How to calculate IRR using excel sheet?
I created a video of how to calculate IRR using excel sheet. In this video, I took all probable types of all endowment plans. I took the examples of the regular premium endowment plan, limited premium endowment plan, single premium endowment plan and money back plans.
You notice in this video that even though I considered higher bonus rate i.e. Rs.50 per Rs.1, 000 Sum Assured per year, still the return of such products not crossed 7.5%.
It is too simple to calculate the return on your own. If you already bought the endowment products, then look at last year bonus rate for your policy and can consider the same bonus rate and final additional rates to arrive at final maturity value or return.
However, if you are planning to buy a new product, then don’t rely on the life insurance agent’s claim. Instead, cross check the bonus of that particular product and then using the above video, you can calculate the expected return from your investment.
If there is no historical bonus rates for your plan (this happens when the plan is new), then in my view, it is wise to consider the bonus rate of Rs.50 per Rs.1, 000 sum assured per year.
Remember that your agent may alter the bonus rates (at the higher end) and may show you the return, which may force you to invest in such products. But never rely on agent’s claim. Instead, visit LIC portal or my earlier post on bonus rates “LIC’s Bonus rates for 2015-16 and Comparison” and do the calculation on your own.
Buy such products only, if you fully convinced about the life insurance offered and returns in such products. Blindly investing for the sake of tax saving, forced selling by agents or simply considering such products as best may actually harm you in the long run.
I am also sharing the excel sheet which I used in this video tutorial for your reference. Let me know if you still feel difficulty in the calculation.
Hope this post will answer to many of those endowment plan buyers or already bought individuals concerns of calculate LIC policies maturity amount.