September 9, 2016

LIC’s One Time Diamond Jubilee Bonus is 6% – Delusive claim

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.

LIC's 60th Anniversary

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.

LIC's One Time Diamond Jubilee Bonus 2016

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.

28 Comments

  1. Absolutely prejudiced writing. The intention is to discredit life insurance in general and LIC in particular and promoting other products like MF. Promoting MF is fine but there is no need to malign other financial products.

    Reply
    • Dear Ramachandran,
      I respect your views. It may hurt if I say upfront what is wrong. Let me know what wrong things I said 🙂

      Reply
      • Don’t look the gift horse in the mouth !! LIC was under no obligation to announce this special bonus. They have announced Accept it with grace. It is perfectly natural that longer term policy holders will stand to benefit more than shorter period policyholders. But you are hell bent on splitting hair and saying it is not available for people in the free cover period. They can enjoy the platinum jubilee bonus !!

        Reply
        • Dear Ramachandran,
          Thanks for your wonderful words you used. It shows your furstration, level and mentality. May I know how much % of IRR this bonus changes the policyholders?

          Reply
  2. I have LIC Jeavn Anan purcse in 2010 for 18 yers for 500000.00 sum assured and new jevan anad purchased for 800000 sum assured in 2014 for 28 years/ what will be the bonus amount i will get from Diamnod Jublie special bonus..

    Reply
    • it is LIC Jevan anand 149 purcshase in 2010 and new jevan anand purchase in 2014..for 800000..

      Reply
    • Siddharth-For 2010 policy, you will receive Rs.5,000 and for 2014 policy, you will receive Rs.4,000.

      Reply
      • Thanks for Update..

        Reply
  3. Hi Basu,

    Can you please let me know if Jeevan Saral plan is eligible for this special bonus or not? I have purchased one in 2008.

    Reply
    • Manthan-Yes, all plans are eligible based on the conditions provided above.

      Reply
  4. Wonderful Article and your conclusion was well said no changes in Bonus.

    It is an eye wash.

    LIC survives because of agents who enroll policies involving family and friends else may become another BSNL.

    Thanks for explaining in detail.

    Hats off to your knowledge and our eye openings on all Financial Products.

    Reply
  5. SIR I VE PAID 5 PREMIUM OF JEEVAN SARAL POLICY [20YR POLICY] TILL 2016. IF I CLOSE THIS POLICY I SUFFER LOSS. SHOULD I STOP FURTHER PREMIUMS AND WAIT FOR 20 YEAR TO MATURE. OR WHERE SHOULD I INVEST THIS LUMPSUM MONEY I RECEIVE AFTER CLOSING THIS POLICY SO THAT I GET GOOD RETURN AFTER 20-5 =15 YEAR

    Reply
    • MS-First check with LIC branch about surrender and paid up values. Then think about daring step of coming out of such dumb plans.

      Reply
  6. One group of people who will truly enjoy the bonus bonanza are those who came up with this bonanza offer in LIC. I am sure many lakhs of paid up policies will be revived again to get this bonus. People who want to make it paid up this year will want to pay one more premium. The agents will benefit in the form of commissions from these revived policies.

    LIC still has 75% market share in insurance industry and they are not going to relinquish it anytime soon because vast majority of Indians are poor. They will want to buy policies worth 2 to 5 Lakh rupees only due to their lesser capacity to pay higher premiums and compulsory return of money expectations thus not favoring term insurance even though it is cheap. LIC should get to their 100 year anniversary with atleast 60% market share in tact.

    Reply
  7. Hi Basu,
    Thanks for such a nice post.
    Quantum of bonus is still alright. Unless this diamond jubilee bonus results in lower regular bonus payout, something is better than nothing. I agree media has exaggerated it a bit. But that’s what they always do.
    The biggest issue with such bonuses is the manner of payment i.e at maturity. Takes everything away.
    Unfortunately, most investors can’t look beyond the quantum of bonus. Timing is almost always ignored.
    Thanks.

    Reply
  8. I wanted to buy a home insurance (basically structure insurance).

    Went through many companies policies, called many of them. Most of them , don’t even oblige a callback request.

    Anyways, the main issue is almost all POLICES states that ” On the happening of loss or damage to any of the property insured by this policy, the Company may:

    1: Sell any such property or dispose of the same for an account of whom it may concern.

    2. Keep Possession of the property.

    The powers conferred by this condition shall be exercisable
    by the Company at any time until notice in writing is given
    by the insured that he makes no claim under the policy, or
    if any claim is made, until such claim is finally determined
    or withdrawn, and the Company shall not by any act done
    in the exercise or purported exercise of its powers
    hereunder, incur any liability to the Insured or diminish its
    rights to rely upon any of the conditions of this policy in
    answer to any claim.

    The Surprising part is “SELL ANY SUCH PROPERTY” When I enquired about this clause from the companies, NONE of them ( and I mean 3-4 big companies) were able to answer this part.

    No one is willing to even call me:)…haha….Imagine a situation wherein you want to buy something at the price set by the seller but no one is selling that to you. Something is wrong..seems

    Just an observation to share with you. Maybe you could investigate it further.

    Almost all companies have this clause in an home insurance policy.

    Reply
    • Ravi-Thanks for sharing this information. Let me dig deep into it.

      Reply
    • If you are seeing a particular clause in all policies then it obviously means incidental but not coincidental! No banker will just come to a property and sell it off just like that. That clause is common in most countries. Usually when a property was damaged beyond control and once the insurance amount is paid off then the bank may at their will sell it off. This is like giving a device to service center or manufacturer during warranty. The manufacturer will do what they want. If you don’t want this then don’t claim insurance/warranty. If the problem is minor just like how the service center gets the device repaired the company pays off the money as per the T&C. If it is beyond repair then they ‘may’ sell it off. This is exactly what the clause says – “The powers conferred by this condition shall be exercisable
      by the Company at any time until notice in writing is given
      by the insured that he makes no claim under the policy, or
      if any claim is made, until such claim is finally determined
      or withdrawn, and the Company shall not by any act done
      in the exercise or purported exercise of its powers
      hereunder, incur any liability to the Insured or diminish its
      rights to rely upon any of the conditions of this policy in
      answer to any claim.”

      Besides, an insurance policy is subject to solicitation. Solicit=To ask. No insurance policy should be provided by an insurer as per IRDA unless the insurer asks for it. You not getting a call back is NOT because there is anything fishy in it rather they are NOT interested due to low commissions. But if you go to a branch no branch will reject you from opting it. In fact, that’s what should be done. An agent coming at doorstep is only a convenience not a rule. But it is the customer who should “solicit” an insurance policy.

      Reply
      • Thanks a bunch “Sreekanth”. Loved your prompt response. Once again , thanks dear for your time and effort. Much appreciated.

        My response in red, please.

        If you are seeing a particular clause in all policies then it obviously means incidental but not coincidental! No banker will just come to a property and sell it off just like that. That clause is common in most countries. Usually when a property was damaged beyond control and once the insurance amount is paid off then the bank may at their will sell it off. This is like giving a device to service center or manufacturer during warranty. The manufacturer will do what they want. If you don’t want this then don’t claim insurance/warranty. If the problem is minor just like how the service center gets the device repaired the company pays off the money as per the T&C. If it is beyond repair then they ‘may’ sell it off. This is exactly what the clause says powers conferred by this condition shall be exercisable –

        The issue is the term “PROEPRTY”. Let me explain how. As you rightly said, “Usually when a property was damaged beyond control and once the insurance amount is paid off then the bank may at their will sell it off.”

        The problem here is:

        1: A property is not a like mobile device (Home is more closer to heart than even WIFE?) wherein the cost of the device is the “Total cost”. In case of a property, it is “the building” + “THE LAND”. As you know, “the land” has more value than the structure itself. Hence, when a property was damaged beyond control (Insurance company will pay me only the structural damage amount) and then as you said “bank may at their will sell it off.”

        So, if my property worth 50 lakh (20 lakh building cost +30 lakh land cost). My insured amount is only 20 lakh (as you know, companies covers only structure cost and not land cost). If there is a damage (beyond repair) and If , I ask for the claim, then I would only get 20 lakh.

        Pretty surprised , whether, I am buying an insurance to safeguard myself or am I buying some C graded, equity mutual fund (risk is greater than return).

        2: The very Term “damaged beyond control/correction”. Is again an problem. For a building, at least, it can be rebuilt always unlike mobile device?. Hence, though, I agree with you but still, if you ask me, there is nothing beyond damage control”.

        None of us can help, as this is what policy says.

        Besides, an insurance policy is subject to solicitation. Solicit=To ask. No insurance policy should be provided by an insurer as per IRDA unless the insurer asks for it. You not getting a call back is NOT because there is anything fishy in it rather they are NOT interested due to low commissions. You are dead right. The point was, few companies, who have replied to me, have NOT been able to explain this part clearly. I should say this is “FEARFUL”

        But if you go to a branch no branch will reject you from opting it. (I fear more now to buy the policy. Reason , is the example, which I cited above. Loss is more than gain). In fact, that’s what should be done. An agent coming at doorstep is only a convenience not a rule. But it is the customer who should “solicit” an insurance policy.

        Reply
        • The clause clearly says “On the happening of loss or damage to any of the property insured by this policy, the Company may”. May=uncertain. So, where is the question of unilateral decision that could be taken by company as you claimed? No where the clause gives indication there will be a unilateral decision. This is same as a health insurance policy which states “The company may defer part of the payment or reject the claim in case if all the requested documents provided are not furnished”. Does it mean, the insurer is going to reject the health insurance claim ALL the times?! Such clauses which you see are written by Insurance Actuaries to safeguard the companies so that there are no undefined gaps while settling the claim. You can always talk to higher department if you think the lower department are unable to answer you and provide them the feedback that the clause can be worded in more detail. I’m sure you have/had never heard/read anywhere where a banker took control of a property which is insured even during Jharkand floods!

          Reply
          • Thank you .

            It is not about the decision but the very fact that, if something major happens (For this reason only one buy the policy and not for minor damages) then, asking for the claim will invoke this clause and ultimately one would be in TOTAL LOSS.

            I tried to mail everyone, I could but unfortnately no reply from anyone to explain this clearly.

            You are right, no one has never heard/read anywhere where a banker took control of a property . But the point is, by virtue of this clause, if mutually agreed then an insurance company can take it. Hence the fear. (My point is no benefit of buying the policy for major loss (so-called damage beyond repair)

            Totally in sync with you ” You can give feedback to the company that the clause can be worded in more detail”. I wish they reply. Months have passed with myself sending infinite E-mail for no good.

            Reply
  9. Wow! 6% bonus by LIC. On policies issued prior to 31.03.1986:

    Economic Times (ET) reported: Life Insurance Corp intends to dole out a bonus of up to 6% of the sum assured to policy holders this year on its 60th anniversary.

    6% bonus is payable only for policies in force prior to 31-03-1986. Even if you are disciplined enough paying premium for the last 30 years, still the bonus would not be paid to you on declaration. LIC will pay this on your death or maturity.

    Only insurance plans of LIC with the suffix ‘With Profits‘ are eligible for allocation of annual reversionary bonuses. Kindly note that except a few plans, the 2016-17 bonus rates on almost all other old plans of LIC are same as the bonus rates of 2015-16.

    ET headline says: LIC lines up bonanza for the faithful, 17 crore policyholders to get 6% bonus.

    Does it mean that 17 crore people got policies from LIC before 1986 and are regularly paying premium for the last 30 years!

    Website of LIC does not carry bonsu information on its website so far: https://www.licindia.in/Customer-Services/Bonus-Information

    Reply
  10. My Policy No. is XXXXXXXXX date of commencement 01.04.2002 date of maturity 01.04.2017 ( 15 Yrs)
    Am I eligible for diamond jubilee Bonus….if so how much will I get on maturity…Thank you

    Reply
    • Ram-Check whether your policy offers you GA, LA or FAB, if so then you are not eligible.

      Reply

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