LIC New Pension Plus 867- Should you invest?

LIC New Pension Plus 867 is a ULIP (Unit Linked Insurance Plan) plan newly launched by LIC on the 5th of September. Along with regular features, this plan offers the GUARANTEED Addition feature. Is it worth investing in this pension plan? What is guaranteed here?

LIC New Pension Plus 867

LIC New Pension Plus 867- Features and Eligibility

Let me first explain to you the features of this product.

  • In this plan, you can opt for either a single premium or regular premium.
  • Minimum entry age is 25 years and maximum entry age is 75 years.
  • Minimum vesting age is 35 years and maximum vesting age is 85 years. This means one can expect the pension either a minimum age of 35 years or maximum age of 85 years.
  • The available policy term is 10 years to 42 years.
  • Minimum investment for a single premium is Rs.1 Lakh.
  • For a regular premium, the minimum premium required is Rs.3,000, Rs.9,000, Rs.16,000 and Rs.30,000 for monthly, quarterly, half-yearly, and yearly respectively.
  • There is no minimum or maximum limit on the sum assured as it is fixed based on the premium you pay.
  • You will have four investment options – Pension Bond Fund (Invest 60% to 100% in Govt Bonds, Govt Securities or Corporate Debt, 0% to 40% in Money Market Instruments and 0% in equity), Pension Secured Fund (Invest 50% to 90% in Govt Bonds, Govt Securities or Corporate Debt, 0% to 40% in Money Market Instruments and 10% to 50% in equity), Pension Balanced Fund (Invest 30% to 70% in Govt Bonds, Govt Securities or Corporate Debt, 0% to 40% in Money Market Instruments and 30% to 70% in equity) and Pension Growth Fund (Invest 0% to 60% in Govt Bonds, Govt Securities or Corporate Debt, 0% to 40% in Money Market Instruments and 40% to 100% in equity). Pension Discontinued Fund is for the discontinued policies.
  • 10% to 25% of the fund value can be withdrawn as partial withdrawal.
  • It is allowed only for special purposes like education, medical treatment, marriage, or while buying a house.
  • One can opt for partial withdrawal only three times in a policy period.
  • You have an immediate or deferred pension option.
  • When you opt for a pension, then up to 60% commutation is possible. But the remaining 40% can be converted into an annuity.
  • You can extend the vesting date. However, such extension is possible only before 60 years of age or before the original vesting age (whichever is earlier). Such extension is allowed only up the maximum vesting available age under this policy and i.e 85 years.
  • In this plan, the GUARANTEE means the GUARANTEED ADDITION of what you will get and 105% of the premium whatever you pay.
  • If death happens before the vesting date, then your nominee will get – HIGHER of fund value or 105% of the premium paid (excluding the partial withdrawal amount).
  • This plan will charge you in six different heads – premium allocation charges, policy admin charges, fund management charges, partial withdrawal charges, discontinuance charges, and miscellaneous charges.

Trap called GUARANTEED Addition

As per this plan feature, there is something called GUARANTEED Addition LIC that will add to your policy period. This guaranteed addition is as below. This percentage is based on the annual premium you pay. Assume that you opted for a regular premium and the premium amount is Rs.1,00,000 a year. Then on the 6th year, LIC will add you Rs.5,000 worth of units. The unit NAV will be based on the prevailing price.

# For Regular Premium

  • 6th Year – 5%
  • 10th Year – 10%
  • 11-15 years – 4% every year
  • 16-20 years – 5.5% every year
  • 21-25 years – 7% every year
  • 26-30 years – 8.75% every year
  • 31-35 years – 10.75% every year
  • 36-40 years – 13% every year
  • 41-42 years – 15.5% every year

Hence, if you opted for this policy with a premium of around Rs.1,00,000 a year and the term of 42 years, then you will get the additional units worth Rs.2,91,000 value of GUARANTEED ADDITION in the form of units at the prevailing price. Note that intentionally the guaranteed addition rates are less during the initial years and increase at a later stage to make sure that you opt for a long-term policy period. But this looks like a peanut kind of a GUARANTEE for the overall 42 years premium payment of Rs.42,00,000.

# For Single Premium

  • 6th Year – 4%
  • 10th Year – 5%
  • 11-15 years – 1.25% every year
  • 16-20 years – 1.5% every year
  • 21-25 years – 2% every year
  • 26-30 years – 2.5% every year
  • 31-35 years – 3% every year
  • 36-40 years – 3.75% every year
  • 41-42 years – 4.5% every year

LIC New Pension Plus 867- Should you invest?

To me, it looks like a replication of NPS with a higher cost (comparing NPS). when you invest somewhere, the first point you have to look for is the cost you have to pay to them. As of now, the cost structure is not disclosed by LIC, but in all probability, it is higher than the NPS or any mutual fund products.

Coming back to the portfolio, I was surprised by the way LIC is preaching to us that Govt Bonds/Govt Securities/Corporate Bonds are safe for us. The only risk we can avoid in the case of Govt Bonds or Goct Securities is default or downgrade risk. However, interest risk is always there and such risk will be high if the fund manager is holding the long-term bonds. Regarding the corporate bonds, all three risks are there – default, credit downgrade, or interest rate risk.

Instead of increasing the exposure of money market instruments for the fund category like Pension Bond Fund or Pension Secure Fund, they have increased the exposure to Govt Bonds/Govt Securities/Corporate Bonds. This looks like a risky debt portfolio.

Regarding the equity portfolio, we are unsure of what benchmark they follow and going forward how consistently they are able to beat it.

As I mentioned above, GUARANTEED ADDITION is just an eyewash to sell and we must ignore it in a big way. Because if your premium is Rs.1,00,000 a year, then to the maximum over the period of 42 years of the policy (if you opted for 42 years of policy period), you will get around Rs.2,91,000 value of units from LIC. Do remember that this is spread over 42 years!!

In case of death of the policyholder, LIC will pay you either the 105% of the premium you paid or the fund value. However, if you opt for term life insruance and invest somewhere (remember…I am not saying to invest in equity or mutual funds), then the death benefit will be sum assured amount and the value of investment.

At vesting, 60% is eligible for commutation and rest 40% can be converted into annuity and this pension is taxable income for you.

Considering all these features, I strongly suggest you to go ahead and invest if you are fan of LIC. Otherwise, a big NO.

16 thoughts on “LIC New Pension Plus 867- Should you invest?”

  1. Ramkaran garg

    Plan mein 5 varsh pure hone ke bad ful surrender milegi ya nahin LIC ka plan number 867 pension Yojana

  2. Thanks a lot for the explanation, however i would like to know about the tax benefits. Is the amount tax free on maturity??

  3. Dear Basu Sir,

    Very nice and detailed analysis. Your blogs are creating much awareness to investors and brings thinking maturity in them.

    LIC is becoming more and more CHEATING insurance company day by day. Any products they launch, there is only benefit for AGENTS and LIC, not for customers or investors.

    Sir, my LIC agent after 15 years of service owns TOYOTA FORTUNER car and policy holder still in MARUTI CAR. This itself is enough to tell how much benefit they give to their agents.


  4. B N Venkataraman

    I got your email id and phone at top of page
    I am now in australia
    will contact vide email after coming to Pune

  5. B N Venkataraman

    Your analysis is good
    LIC smart life pension plan is better compared to SBI retire smart etcetra.
    As you specified there is undeclared elements of commission, allocation expenses and fund management expense, all these will bring down the return from fund performance (cagr of say 13%) to less than 8%.
    Not only that even if you assume just 10 year deferrment to age 85 (say 45 years of retire) the pension would be just 5-6% and for 45 years that is a big trap during retr life.
    it should be a big NO to invest.
    I request you to give me your email id so that I can explain about my INFLAPRO concept in my website
    Guaranteed Addition are all mere attraction to fool the customer
    After allowing for inflation the real retun woud be just around 2%

  6. Sir guarantee additions 2,91,000 during the term 42 years in units
    How much you expect that day value.
    Total amount how much I receive
    Please give me some information.

    1. Dear Srinivasa,
      As the value of those will be in a unit format and not allotted in a single shot (rather in a staggered manner), it is hard for me or to anyone on the value of these units at maturity.

  7. This looks to be a great policy. Not sure why are you comparing this with NPS where in we have to wait until 60 years and here there is an option to take the policy for 10 years with withdrawal 60% and 40% annuity..
    Given debt funds generate at least 8/10% long term and equity 12/15%, we easily double our money in 10 years, take 60% of it and rest is life long pension. Seems good to me. Also 105% is returned to dependent’s after death.. so overall good and great alternative to NPS with min period of waiting and guaranteed addition benefits

    1. Dear Santosh,
      Except liquidity feature, GA, high cost, what great they are adding in comparison to NPS? Great that you firmly believe 8/10% is easily possible with debt and 12/15% with equity. Please go ahead and buy this product. Regarding the death, it is EITHER fund value or 105% premium paid as of that day to be payable to the nominee. I hope you understand the logics 🙂

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top