A few days back Moneylife Foundation approached the Supreme Court with regard to LIC Jeevan Saral Plan seeking a refund of premiums to the policyholders. Who is to blame for this? LIC, Agents or Policyholders?
I have written long back about this product “LIC’s Jeevan Saral-Why so much confusion?“.I want to reproduce the same for your benefit.
- In this plan, you can choose your premium amount which is not possible with other plans. Minimum monthly contribution in this plan is Rs.250.
- Sum Assured will be 250 times of your monthly premium payment. Hence suppose your monthly contribution is Rs.1,000 then sum assured will be Rs.2,50,000. You may call this benefit as “death benefit sum assured” as this benefit is only meant for deaths. Hence don’t misunderstand that Sum Assured is the amount you get after maturity (which is the case with other plans). Hence I will call it as Death Benefit SA or DBS. So this option is a bit advantage for age-old buyers as irrespective of your age this DBS is fixed on your premium payment but not on your age and term you selected. This is not the case with other plans of LIC. So two persons paying the same premium but age difference is around 30 yrs then they will get the same sum assured benefit under this plan.
- In this plan, if death occurs during the policy period then your nominee will receive this Death Benefit SA+Return of premiums paid (but excluding 1st-year premium)+LA till that period.
- Now the biggest confusion arises is, what you will receive after the maturity. Usually, in all LIC policies, you will receive Sum Assured+Accrued Bonus+Final Additional Bonus if any. But in this plan depending on your age and term of the policy your sum assured which is also called as Maturity Sum Assured will change. So during the period of taking this policy, you will come to know what is your Maturity Sum Assured you will receive at the end of the policy. This is fixed and will not change during the policy term. Will show you how to calculate it.
- In this plan, there are two types of premiums. One is called Basic Premium and another is called Net Premium. The basic premium is the base premium without adding any cost, but Net Premium is the premium which you actually pay to LIC and includes premium mode rebate (a rebate of 2% for yearly and 1% for half yearly payment)+charges for providing you the death benefit SA (@1% DBS). Below table will give you a clear picture of this.
Note-Death Benefit SA charges are arrived as below-
A yearly premium of Rs.3,000 is divided into 12 and then multiplied by 250 times this will be (3,000/12)*250=62,500. This is the DAB and charges for this will be @1 hence Rs.62.
Now notice from the above table that basic premium is nothing but base premium but the net premium will add rebate and costs of this plan (which includes mode rebate and DAB charges @1%).
If it is so confusing to you then the simple formula to come to net premium is multiply your basic premium by the factor 1.00083 this will result in net premium which you need to pay to LIC.
Now, what you will get after maturity?
In this plan, you will receive Maturity Sum Assured which is fixed and known to you in advance during the start of the policy once your age and term you chose. With this Maturity Sum Assured LIC will also provide you Loyalty Additions. This Loyalty Addition will be declared annually and currently, LIC declared Loyalty Addition (LA) for 10 yrs and 11 yrs of policies only and which are Rs.250 and Rs.300 respectively. Based on this declaration we may presume the returns from this policy which hover around 6-7%. But for 10 yrs policy, it is just around 3-4%.
How to calculate the Maturity Sum Assured yourself?
LIC provided Basic Maturity Sum Assured list for the premium of Rs.100 per month for all ages. So just you need to select your age and policy term then multiply that to your Basic Premium. I am working on this chart and soon will upload the whole Basic Maturity Sum Assured Chart.
- Surrender Value-There are three types of surrender values under this plan. To avail, these option policies need to complete at least 3 years.
a) Guaranteed Surrender Value-In this you will receive 30% of total premiums paid excluding 1st-year premium, all extra premiums and accident benefit/term rider premiums.
b) Special Surrender Value-It will be of 1+2 options given below.
1) 80% of MSA will be paid if less than 4 years premium paid, 90% of MSA if between 4 to less than 5 years of premium paid and 100% of MSA if premiums are paid for 5 years or more.
2) Loyalty Addition until that period.
c) Can be made anytime after completion of 3 years or more from the start of the policy provided full premiums are paid.
Hope now you got clarity on this product. Let me shortlist all these as below.
- Unlike other products of LIC, in this plan, you have the flexibility to fix your own premium and sum assured at death. The ideal sum assured at death is 250 times of your monthly premium.
- The interesting part of this plan is that irrespective of age, your life risk will remain the same. Because your sum assured at death will depend on premium but not on age.
- LIC first time introduced the concept of Maturity Sum Assured through this plan, which is not the sum assured of the plan.
LIC Jeevan Saral – Is it really a scam?
Now let us come to the main issue of why Moneylife Foundation knocked the Supreme Court for compensation towards the policyholders.
As per the Moneylife Foundation’s claim, LIC sold around 50 million policies. The major points of what Moneylife Foundation claiming are WRONG from LIC are listed below.
- Maturity Sum Assured was not mentioned in the proposal form. How the LIC forgot to mention the Maturity Sum Assured when this product offers two types of sum assured?
- Goraknath Agarwal was the head of the actuarial department of LIC when Jeevan Saral was launched. Mr.Agarwal himself addressed the gathering of LIC Officials and claimed few things like one can surrender after 3 years, good returns, high returns, yield like 9% and not mentioned anything about the loss of the money.
- In Policy Bond issued by LIC to the policyholder mentioned the wrong Sum Assured or Maturity Sum Assured. Many policies issued during the years 2003-04, 2004-05 and 2005-06 did not show the maturity sum assured in the policy bond.
- Policyholders, especially the senior citizens receiving the lower returns than the actual claim by LIC staff or Agents.
My take on LIC’s Jeevan Saral Vs Monelylife Foundation issue
- I am not here either to defend LIC or Moneylife Foundation. Also, I am not a representative of LIC or Moneylife Foundation.
- This is a typical endowment plan of LIC. Hence, expecting a higher return from such an endowment plan is the BIGGEST mistake for the buyer.
- I am not saying that there are no misselling, as with other financial products, here too few representatives might exaggerate the returns and lured the buyers. Hence, there may be certain genuine misselling by agents.
- When we buy any product or invest somewhere, then it is we who has to do the RISK profiling on our own.
- The reason why older people purchased this product is mainly life risk coverage is higher or equal like any other young buyer. Because your life risk in this plan depends on the premium but not on age. Hence, this trick might be used by a few agents to sell this product specifically to older people.
- Claiming LIC not mentioned the Maturity Sum Assured on proposal form is not a mistake as per me. Because when it comes to Guaranteed Addition products like an older version of Jeevan Shree or Komal Jeevan, where the LIC used to give us the GA at a fixed rate, LIC never mentioned the benefit amount in the proposal form. Hence, claiming this as the BIGGEST fault is not digestible. Also, there is a standard format for all LIC plans rather than separate proposal form for each product.
- If whether LIC’s actuary, officials or representative of LIC given in writing about high returns, deviated from the policy feature in claiming, manipulated the benefits and showed to the buyer, then it is complete WRONG. However, as per the Moneylife Foundation, there are no such written or confirmed statements by LIC or it’s representatives that LIC will give us higher returns than the typical endowment plans. Hence, I don’t think this it is an issue to squarely blame LIC.
- As per Moneylife Foundation claim, LIC not mentioned or wrongly mentioned the Sum Assured or Maturity Sum Assured in the Policy Bond. If this is true, then definitely LIC has to pay the penalty for this. Because Policy Bond is an agreement between the Policyholder and the Life Insurance Company. If there are any such wrongdoing by LIC, then policyholder has every right to claim the compensation.
- Yes, I can understand the situation of the old people who for the sake of GUARANTEED income, higher returns and TRUSTWORTHY LIC, purchased this product and now ended up with lower returns ranging from 3% to 6%. But, it does not mean we have to blame LIC for this.
- Claiming LIC responsible for launching this product, claiming LIC responsible for lower returns NOW, or claiming LIC for the misguide happened by an agent (without valid proof) is completely wrong.
- However, as I said above, if there is valid proof where LIC did wrong in printing wrong Sum Assured and MSA in a policy bond, then it is a responsibility of LIC to compensate for the same.
- Moneylife did not understand the product properly. The reason is that in their one article they mentioned as “For example, a 58-year-old person, paying a half-yearly premium of Rs4,076 for 12 years, had paid a total of Rs97,824. The maturity sum assured, which was paid to him after 12 years, was a mere Rs24,575 plus bonus, amounting to Rs34,405. Even though the maturity amount was mentioned in the policy document, it was missing in the proposal, which only specified the death sum assured of Rs1.25 lakh.” The reason is that this policy not offer you the BONUS, but a LOYALTY Addition.
Hence, considering all these aspects, we just can’t brand LIC Jeevan Saral is a TOXIC just because this product was not delivered the returns I EXPECTED (rather than the actual claim by LIC), just because LIC did not mention the MSA (Maturity Sum Assured) on the proposal form, just because few representatives misguided the buyers (without valid proof) or just because Moneylife received many complaints about Jeevan Saral, we can’t brand LIC Jeevan Saral plan as a WRONG.
However, if the Moneylife Foundation has valid proof where certain LIC representatives manipulated the product feature, misguided the buyers with higher returns, LIC defaulted it’s a payment to the policyholders as per the policy wordings, wrongly mentioned the sum assured and maturity sum assured in policy bond, then definitely LIC has to take responsibility and compensate to those where such things happened.
But we can’t squarely blame LIC for all our mistakes. It is we the buyers or investors first have to OPEN our eyes before BLINDLY judging or investing in any product.
I am recommending to read the few of Moneylife Foundations article for your better understanding on their claim about LIC’s Jeevan Saral.
- LIC Jeevan Saral: Moneylife Foundation Files Petition in Supreme Court Seeking Refund of Premiums for Policyholders
- Will LIC Be Made To Pay for the Horrible Mis-selling of Jeevan Saral?
- Life Insurance: LIC Jeevan Saral: A Toxic Product