LIC’s new plan “Jeevan Vriddhi”-Review

Today LIC launched new plan called Jeevan Vriddhi. We will look into it’s features and will analyze whether it is good plan for investment or not.

Features:

1) It is a single premium policy.

2) Policy term is 10 yrs.

3) Minimum age at entry is 8 yrs and maximum age is 50 yrs.

4) Minimum Basic Sum Assured is 1,50,000 but no upper limit.

5) Minimum Premium is Rs.30,000

6) Death Benefit-On death, Basic Sum Assured shall be payable. The Basic Sum Assured shall be 5 times the Single Premium excluding extra premium, if any.

7) Maturity Benefit-On maturity, the Guaranteed Maturity Sum Assured along with Loyalty Addition, if any, shall be payable.

8) Loyalty Addition-It depends on LIC’s experience which you will get at the time of policy maturity.

9) Loan- is available after completion of one year.

10) Surrender Value-The policy can be surrendered for cash after the policy has run for at least one year. The minimum Guaranteed Surrender Value allowable is equal to 90% of the Single premium paid excluding extra premium, if any. Corporation may however pay Special Surrender value as applicable on the date of surrender provided the same is higher than the Guaranteed Surrender Value. The Special Surrender Value will be the discounted value of the Guaranteed Maturity Sum Assured as on date of surrender.

Now we will look with one simple example. Mr.X whose age is around 30 years want to invest in this policy and he is investing Rs.1,00,000 (I took Rs.1,00,000 because LIC is providing 3% extra on Guaranteed Maturity Sum Assured if your investment is Rs.1,00,000 or more.). So, he will get Rs.5,00,000 Life Risk (5 times of the premium he paid). On maturity he will receive Rs.1,97,100+ Loyalty Addition if any (Which I think will be around Rs.15,000 to Rs.20,000). So overall you may receive around Rs.2,20,000. If in case of his untimely death during policy tenure his nominee will receive Rs.5,00,000. So, return on investment will be 8.20% CAGR.

Instead of investing in this plan if he opted for Term Insurance+SBI Fixed Deposit (Interest Rate is 9.25% currently for more than 5 yrs to 10 yrs term) then for term insurance coverage of Rs.5,00,000 he need to pay Rs.1,282 yearly for ten years (LIC’s Anmol Jeevan). Hence totally he will pay Rs.12,820 in ten years and he will receive from FD maturity of SBI Rs.2,42,222 as maturity. Hence if we deduct from SBI FD return with term insurance cost (Rs.2,42,222-Rs.12,820=2,29,402) then the total return will be Rs.2,29,402. So not much different if you play with different available options like Bank FDs and 10 yr NSC.

Tax perspective under DTC too favorable towards this plan (even though it is mentioned as close ended but i didnt find any date of closure on LIC site. Hence I considered DTC, which may be effective from next FY), as you will not get exemption if you invest in NSC or SBI term deposit for 10 yrs. But if you invest in this plan then you will get the tax exemption under Section 80C but maturity proceeds are taxable under DTC.

So in my view if investor is not ready to take the path of Equity or any risky investments then this is the best plan to invest for. With the kind of guaranteed return around 8% CAGR and with bit of life cover, this is the best plan to go with. Hurry up, it is close ended plan.