 "LIC's new plans offer no new benefits")
The Life Insurance Corporation of India (LIC) recently launched two new non-linked, with-profit plans. One is Jeevan Labh, which has policy terms of 16, 21 and 25 years and premium paying term of 10, 15 and 16 years, respectively. The other is a closed-end single-premium plan, Jeevan Shikhar. It is available for sale up to March 31.
Both are being sold on the basis of a limited premium-paying feature. Although premium is paid for a limited period, policyholders can enjoy life cover for the entire policy term. But, remember that typically returns from traditional plans such as endowment ones are low. And, they do not offer high life cover. Hence, it is advisable to buy a pure-term insurance plan and invest in tax-efficient instruments such as public provident fund (PPF) or tax-saving equity mutual funds.
In the case of Jeevan Shikhar, the minimum maturity sum assured is Rs 1 lakh, while there is no limit on the maximum. The policy term is 15 years and the maximum entry age is 45 years. Single-premium plans are expensive because the death benefit has to be 10 times the premium for the policy to be eligible for tax benefits. For the same premium, you can buy a term plan with much higher death benefit, because there is no savings component in a term plan.
In Jeevan Labh, the maximum age at maturity is 75 years. The minimum basic sum assured is Rs 2 lakh and there is no limit on the maximum. On maturity of the policy and the policy holder surviving to the end of the policy term, basic sum assured along with vested simple reversionary bonuses and final additional bonus, if any, shall be payable.
“The plan (Jeevan Labh) is suited to those who want premium commitment for short duration having life coverage and benefits for a longer period,” LIC says in a release.
Deepak Yohanan, founder of Myinsuranceclub.com, says this feature might appeal to buyers. “It is easy to convince buyers in the tax-saving period because many people are reluctant to
pay premia for a longer period. Most insurance companies launch new plans in the last quarter of the financial year to cater to tax-saving needs.”
On payment of higher premium, Jeevan Labh offers two riders. These are an Accidental Death and Disability Benefit Rider and a New Term Assurance Rider. The riders offer an additional sum assured, apart from the basic sum assured, in case the policyholder dies during the policy term. But, there are limits with regard to the sum assured for both the riders.
This is because the premium for the riders is lower than that for the basic sum assured. So, it can become a moral hazard in case the policyholder does not have a high income, says A S Narayanan of Reach Ajcon Financial Advisors.
“The policy offers guaranteed returns, but the returns are minimal. For someone who is in the higher-age bracket, due to high mortality rates, the returns will be low. But, even for someone in the age of 25-30 years, returns are in the range of four-five per cent. It is better to go for a combination of pure-term plan plus mutual funds,” he says.
The additional premium for the riders will be based on the age of the policy holder and the policy term, says S Sridharan, head of financial planning at FundsIndia.com. “Since it is a participating plan, benefits will depend on the company’s performance. But, usually, endowment plans do not offer more than five per cent returns. We advise PPF or bank fixed deposits for risk-averse investors and equity mutual funds if you are willing to take some risk.”
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