LIC is launching new money back plan called LIC’s Bima Diamond Plan No.841 . This policy will be available from 19th September, 2016 to 31st August, 2017. Let us see it’s features, benefits and why you should skip this product.
Before proceeding further, let us first look into the product feature of LIC’s Bima Diamond Plan No.841.
This is a typical non-linked, with-profit, limited premium payment money back life insurance plan. Non-linked means it is not ULIP or your money will not be linked to equity market movements. With-profit means, it is like investment product where you get returns on your investment based on the product feature. Money back means at a different interval of the policy term, you will receive some money from this policy.
What are the highlights of LIC’s Bima Diamond Plan No.841?
LIC features this as a unique product with so many features included in a single product. Let us see each of them.
Auto Cover Period of LIC’s Bima Diamond Plan No.841
This policy claims that your life risk will continue even though you will not pay the premium. But there are certain conditions to it. Hence, first, let us understand what us Auto Cover Period for LIC’s Bima Diamond (Plan No.841). They specified the auto cover into two periods as below.
- If at least 3 full years’ but less than 5 full years’ premiums have been paid under a policy and any subsequent premium is not duly paid-Auto Cover Period of 6 months shall be available.
- If at least 5 full years’ premiums have been paid under a policy and any subsequent premium is not duly paid- Auto Cover Period of 2 years shall be available.
So if you fall under first auto cover definition, then your life cover will continue for another 6 months from the first unpaid premium. Same way, for the second option it is for 2 years from first unpaid the premium.
What is the benefit during Auto Cover Period of LIC’s Bima Diamond Plan No.841?
Here is the catch which many fail to notice. As per this plan the benefits are divided into two types.
# Death Benefit-Death Benefit will be payable to you after deducting the all unpaid premiums+interest thereon up to the date of death and the balance premium(s) for the base policy falling due from the date of death and before the next policy anniversary. If any survival benefit was due but not paid before the date of death, the same shall also be paid along with the above-mentioned death benefit.
What it indicates that the auto cover will be payable only after deducting all the premium dues from you along with interest thereon.
# Survival Benefits-The survival benefit will be paid only after the policy is revived.
Therefore, this auto cover feature of LIC’s Bima Diamond (Plan No.841) is just an eyewash. Nothing will be payable to you at free of cost. They will deduct all the dues and interest thereon and finally they pay you.
What is the benefit after the Auto Cover Period of LIC’s Bima Diamond Plan No.841?
# Death During Policy Period-Death Paid-up Sum Assured will be payable to you and this death paid up sum assured will be calculated as below.
Death Paid-up Sum Assured=[Sum Assured on Death * (Number of premiums paid / Total number of premiums payable)].
It is nothing but the reduced sum assured risk based on how long you paid the premium paid. This feature will be applicable to all LIC policies. So not a great thing.
On maturity-Maturity Paid-up Sum Assured which will be payable on Life Assured surviving to the end of the policy term. This is calculated as below.
Maturity Paid-up Sum Assured=[(Number of premiums paid/Total Number of premiums payable) x (Sum Assured on Maturity plus Total Survival Benefits payable under the policy)]-Total amount of Survival Benefits already paid under the policy.
Extended Cover feature of LIC’s Bima Diamond Plan No.841
During this extended period your life is protected up to 50% of Sum Assured. Therefore, if you have Rs.1 lakh policy, then after maturity period, you are eligible for Rs.50,000 free risk coverage.
What is the extended cover?
It is the period which is half of the term of the policy and begins immediately after maturity. Therefore, you may say as below.
Extended Cover-Policy Term/2
The extended cover feature will be applicable to those policies which are in force (not lapsed) up to the period of maturity.
Therefore, if you buy the LIC’s Bima Diamond (Plan No.841) for a Sum Assured of Rs.1 lakh with a term of 20 years. Then this extended cover will start immediately after 20th-year completion or beginning of the 21st year and it will end after 10th year from the date of maturity.
During this extended period, LIC offers you half of the sum assured in policy (Rs.50,000) up to the 10th year from the date of policy maturity period.
Premium Paying Term of LIC’s Bima Diamond Plan No.841
This policy offers you various term and premium paying options. This is nothing but limited premium payment feature of LIC policies. The feature is as below.
# For 16 years policy-The premium paying term is 10 years. So you pay the premium only for 10 years. From 11th year to 16th year, you no need to pay the premium.
# For 20 years policy-The premium paying term is 12 years. So you pay the premium only for 12 years. From 13th year to 20th year, you no need to pay the premium.
# For 24 years policy-The premium paying term is 15 years. So you pay the premium only for 15 years. From 16th year to 24th year, you no need to pay the premium.
Money Back Feature of LIC’s Bima Diamond Plan No.841
During policy period, you will receive survival benefits under this plan. Let us see the feature of this.
# For 16 years policy
15% of Basic Sum Assured at the end of each of 4th, 8th and 12th policy year. Therefore, if you go for a Rs.1 lakh sum assured policy, then you will receive Rs.15,000 at the end of each of 4th, 8th and 12th policy year.
# For 20 years policy
15% of Basic Sum Assured at the end of each of 4th, 8th, 12th and 16th policy year. Therefore, if you go for a Rs.1 lakh sum assured policy, then you will receive Rs.15,000 at the end of each of 4th, 8th, 12th and 16th policy year
# For 24 years policy
12% of Basic Sum Assured at the end of each of 4th, 8th, 12th, 16th and 20th policy year. Therefore, if you go for a Rs.1 lakh sum assured policy, then you will receive Rs.12,000 at the end of each of 4th, 8th, 12th, 16th and 20th policy year.
Eligibility for buying LIC’s Bima Diamond Plan No.841
Above said features are highlighted as unique one to LIC’s Bima Diamond (Plan No.841). Now let us look at some features of this plan and who are eligible for buying this plan.
You notice that the maximum sum assured is restricted to Rs.5 lakh. This I think the biggest hurdle to many.
Benefits of LIC’s Bima Diamond Plan No.841
There are three types of benefits one can receive while buying this plan. Let us discuss one by one. Before jumping into benefits, there two points you must understand.
Sum Assured at Maturity–
55% of Basic Sum Assured for policy term 16 years and 40% of Basic Sum Assured for policy terms 20 and 24 years.
Sum Assured on Death-You will receive highest of below three.
- 10 times of annualised premium;
- Sum Assured on Maturity
- Absolute amount assured to be paid on death, i.e. Basic Sum Assured.
The death benefit shall not be less than 105% of all the premiums paid as on date of death. Premiums referred above shall not include any taxes, extra amount chargeable under the policy due to underwriting decision and rider premiums, if any.
# Death Benefits under LIC’s Bima Diamond Plan No.841
- If death before 5 years of policy period-“Sum Assured on Death” will be payable.
- If death after 5 years but before policy maturity date-“Sum Assured on Death” and Loyalty Addition.
- If death is death during the Extended Cover Period-An amount equal to 50% of Basic Sum Assured shall be payable.
# Survival Benefit under LIC’s Bima Diamond Plan No.841
If you survive till policy maturity with paying premiums regularly, then you will receive the money back during policy period as below.
# Maturity Benefit under LIC’s Bima Diamond Plan No.841
- 55% of Basic Sum Assured+Loyalty Addition for policy term 16 years.
- 40% of Basic Sum Assured+Loyalty Addition for policy terms 20 and 24 years.
Other Features of LIC’s Bima Diamond Plan No.841
# You can avail the loan from this policy. For in-force policies it is up to 90% of surrender value and for paid up policies, it is 80% of surrender value. Any loan outstanding along with interest shall be recovered from the survival benefits or claim proceeds at the time of exit.
# If the policyholder commits suicide at any time within 12 months from the date of commencement of risk and the LIC will not entertain any claim except for 80% of the premiums paid, provided the policy is in force.
# Policy can be revived within the 2 years of the first unpaid premium.
# The policy will acquire paid up value if the premium has been paid for 3 full years.
# Policy can be surrender after the 3 years if at least 3 full year premium is paid.
LIC’s Bima Diamond Plan No.841-Why you should avoid?
Let us try to point one by one of why you must stay away from this plan.
# Maximum Sum Assured is Rs.5 lakh-I am not sure why LIC restricted the sum assured to LIC. What will be the value of Rs.5 lakh after 20 yrs or 24 years? It may be the monthly expense. How can one assume that this will create wealth in future??
# Auto Cover is highlighted as if the unique benefit. But look at the feature closely, they may be offering you the cover but while paying, they deduct all the premium dues exist along with interest. So basically the idea is to run the policy as much as possible instead of show in their books as LAPSED policies. Hence, it will not benefit to many or a flagship feature to go for this plan.
# Extended cover is showcased again as the unique benefit. However, more than this plan, LIC’s New Jeevan Anand seems to be better, which offers this extended cover forever and full to the value of sum assured. In this plan, it is up to half of policy term and half of sum assured ONLY.
# Premium Paying Term and Money Back features-This is like a typical limited premium paying endowment plan. Not a big deal again. Also, LIC already offering money back plans. Same feature here too. LIC wisely pay you some % of sum assured you opted. Rest of sum assured at maturity.
# Maturity Benefit-At maturity you are eligible for Maturity Sum Assured, which is 55% to 40% of Basic Sum Assured and Loyalty Addition. Hence, never be in a belief that maturity benefit will be full sum assured as is the case with other plans. It is a money back plan. Some % of sum assured they pay in the middle. Rest of sum assured will be payable at maturity. For this, LIC named as maturity sum assured for this plan. Just to confuse ME and YOU.
# Returns-This is a typical endowment plan. Hence, you can expect around 5% to 6% return. If you feel this is the BEST return expectation for 16 yrs , 20 yrs or 24 years, then definitely you must buy this product. Otherwise, simply ignore this.
I will not do any calculation as LA part is not known now. But if we compare the returns of other endowment or money back plans, we can easily presume the returns from this plan.
In my view, they bundled the features of Money Back plan and part of Jeevan Anand plan and produced a hybrid product calling it as LIC’s Bima Diamond Plan No.841. Also, this extended cover feature is not new in LIC. If I remember correctly LIC’s New Bima Gold had this feature.
Hence, it neither fulfill your insurance need nor the investment need. Simply avoid it. Always separate your insurance requirement with investment. For insurance, term insurance is best and simple. For investment, try to identify your financial goals. Based on goals select the asset and asset allocation. Finally, go for products within that asset class.