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- 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• 10% to 25% of the fund value can be withdrawn as partial withdrawal.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.