LIC cuts bonus on 'with profit' policies

Payouts drop between 11-45% on policies depending on maturity.

Life Insurance Corporation of India (LIC) has drastically reduced the bonus to policyholders by as much as 11 to 45 per cent for the financial year 2003-04.

This means policyholders who had shelled out additional premium to participate in 'with profit policies' have seen yearly bonus fall year on year for the past four years.

A policyholder thus stands to gain far less in terms of returns on his policy. In 2002-03, when a policyholder got Rs 5,800 for his Rs 1 lakh endowment plan, this year his bonus amount has fallen to Rs 5,100 under the same plan.

Under the Jeevan Rekha plan, a policyholder today would get a bonus sum of Rs 39 for Rs 1,000 in terms of the value of his policy. Last year, he was getting as much as Rs 58 per thousand sum assured.

This reflects a fall of over 30 per cent in his returns. Should he have opted for a longer term cover, his return (bonus) stands that much reduced at Rs 45 per thousand sum assured, against Rs 64 per thousand sum assured declared in fiscal 2002-03, a fall of 45 per cent in the bonus amount.

The state life insurance company, which announced the revised bonus for its policyholders yesterday, declared a surplus of Rs 10,935 crore, following the actuarial valuation as on March 31, 2004.

Of this amount, five per cent amounting to Rs 547 crore is paid to the Government of India as yearly dividend. The balance Rs 10,388 crore is distributed as bonus to the holders of 'with profit' policies, which were in-force as on March 31 2004.

The number of in-force policies has gone up from 14.11 crore to 15.62 crore, registering a growth of 10.7 per cent.

The reversionary bonus rates declared on Whole Life Policies at Rs 80 per thousand sum assured, on Endowment Type Policies at Rs 51-57; Money Back, Anticipated Endowment at Rs 46 (term 20 years) & Rs 51(term 25 years); Jeevan Mitra, Jeevan Sathi, Limited Endowment Policies at Rs 52-58; Jeevan Surabhi Policies at Rs 48 (term 20 years) & Rs 57 (term 25 years); Jeevan Anand at Rs 49-53; Jeevan Rekha at Rs 39-45.

Bonus on various plans are as per thousand sum assured for 16 years and above, and depend on term of the policy, with the amount being higher for long term policies.

According to LIC officials, the reduced bonus rates are on an account of the fall in average yield on investments owing to overall declining interest rate scenario.

However, "we have maintained the bonus rate on pension plans ranging between Rs 18 and Rs 24, as these rates were low to start with," said LIC officials.

In addition to the reversionary bonuses declared, the corporation LIC has announced final additional bonus and loyalty addition to give add on value to policyholders who keep their policies in force.

The rates of final bonus are up to Rs 1,400 per thousand sum assured depending upon term and sum assured of the policy provided the policies fulfil stipulated conditions.

Further, as in the previous year, the loyalty addition in respect of Jeevan Shree policies maturing on completion of 5 years term continues to stand at Rs 75 per thousand sum assured and for 10-year term at the rate of Rs 125 per thousand sum assured.

In financial year 2003, on account of LIC having to make an additional provision towards the solvency margin, bonuses on its 'with profit' policies fell by an average of 10 per cent. Senior officials said: "Had it not been for our need to make a provisioning towards solvency margin, the fall in bonus would have been just two to three per cent".

While LIC has been forced to reduce its annual bonus to policyholders, senior officials stated that it has kept the terminal bonus at a high level from its investment surplus.

 

Reversionary bonus rates
	FY03 bonus	FY04 bonus	% Fall
Whole life policies	90	80	12.50%
Endowment-type policies	58-64	51-57	10.90%
Money back	52* & 58#+	46 & 51	12%
Jeevan Mitra, Jeevan Sathi	59-65	52-58	10.70%
Jeevan Surabhi	54* & 64#	48 & 57	10.90%
Jeevan Anand	54-59	49-53	10.16%
Jeevan Rekha	58-64	39-45	32.7-45%
(Bonus on various plans per thousand sum assured for 16 years and above. The bonus depends on term of the policy, and the amount is higher for long term policies)
* Term 20 years; # Term 25 years