LIC has launched a recent life insurance coverage product. LIC Jeevan Utsav (Plan no. 871).
On this publish, let’s break down LIC Jeevan Utsav and see the way it works.
The great and the dangerous factors, and the returns you’ll be able to count on. And eventually, do you have to make investments?
LIC Jeevan Utsav (Plan 871): Non-linked, Non-Taking part Plan
Non-linked means LIC Jeevan Utsav is NOT a ULIP. It’s a conventional plan.
Non-participating plan means the returns from LIC Jeevan Utsav are assured. In different phrases, you’ll know upfront how a lot you’ll get (and when) from the plan. No confusion surrounding bonuses and so on.
This additionally means you’ll be able to calculate XIRR (or internet returns) from this plan before you purchase the plan.
Observe “Assured returns” doesn’t imply good returns. May also be poor returns. That’s one thing we are going to determine later on this publish.
For extra on various kinds of life insurance coverage merchandise and how one can decide inside 2 minutes which plan you might be shopping for, discuss with this publish.
LIC Jeevan Utsav (Plan 871): Salient Options
- Non-linked and Non-participating plan
- Restricted premium fee plan: This implies coverage time period is longer than the premium fee time period.
- Entire Life Plan: Coverage will run till you might be alive. No idea of maturity right here. And that the dying profit will definitely be paid.
- Two variants: Common Revenue Profit and Flexi Revenue Profit
- Minimal Fundamental Sum Assured: Rs 5 lacs. No cap on most Sum Assured.
- Assured additions through the premium fee time period.
- So, on this plan, after the premium funds are over, you get a set quantity yearly for all times. After you go away, the nominee will get the dying profit.
LIC Jeevan Utsav (Plan 871): Dying Profit
Within the occasion of demise through the coverage time period, the nominee shall get:
Dying Profit = Sum Assured on Dying + Accrued Assured Additions
Sum Assured on Dying = Larger of (Fundamental Sum Assured + Accrued Assured Additions, 7 X Annualized Premium )
The dying profit can’t be lower than 105% of the full premiums paid.
Now, right here is spanner within the works.
Given the formulation for Sum Assured on Dying (SAD), it’s doable that the SAD could not exceed 10 X Annualized premium.
If Sum Assured on Dying doesn’t exceed (or equal) 10X Annualized premium, the maturity/survival profit is not going to be exempt from tax.
Observe that the dying profit will nonetheless be exempt from tax.
LIC Jeevan Utsav (Plan 871): Maturity Profit
Since it is a entire life plan, the coverage will run till you might be alive.
Therefore, no idea of maturity profit right here. Very similar to a time period life insurance coverage plan.
However the coverage has survival advantages, as we focus on within the subsequent part.
LIC Jeevan Utsav (Plan 871): Common Revenue Variant and Flexi Revenue Variant
That is about survival advantages.
Beneath the Common Revenue variant, the policyholder will get revenue equal to 10% of the Fundamental Sum Assured yearly. Till the coverage holder passes away.
When does the revenue begin?
As per the next desk.
The Flexi Revenue Variant is just not too completely different. It simply affords the choice to build up these annual payouts. So, you’ll be able to select to not obtain the payout and let the cash be with LIC.
The cash that’s not withdrawn will accumulate returns (curiosity) on the charge of 5.5% p.a. till you withdraw.
You possibly can withdraw as much as 75% of the gathered flexi profit (together with curiosity) as soon as in a coverage yr.
Since there may be not a lot distinction between the 2 variants, you’ll be able to change/specify the choice (common or flexi) till 6 months earlier than the beginning of the revenue profit.
LIC Jeevan Utsav (Plan 871): Assured Additions
Assured additions haven’t any function to play in calculation of survival profit.
Comes into play solely in calculation of dying profit.
Keep in mind Dying Profit = Sum Assured on Dying + Accrued Assured Additions
The calculation is sort of easy.
Yearly, till the tip of premium fee time period, the coverage will accrue Assured additions on the charge of 40 per thousand of Fundamental Sum Assured.
So, if the essential Sum Assured is Rs 5 lacs and the premium fee time period is 10 years, then the coverage will accrue 40 X (5 lacs/1,000) = Rs 20,000 price of assured additions.
Observe that these assured additions will accrue solely through the premium fee time period. As soon as the premium fee time period ends, no additional assured additions will accrue.
And this accrued quantity will probably be paid together with Fundamental Sum Assured will probably be paid to the nominee when the coverage holder expires.
LIC Jeevan Utsav (Plan 871): What are the returns like?
An excellent half about LIC Jeevan Utsav is which you could calculate the XIRR (internet return) from this plan earlier than you make investments.
The one assumption it’s important to make is longevity. How lengthy will you reside?
Why? As a result of the plan ends solely on demise of the policyholder.
For returns calculation, let’s assume that age of demise to be 90 years.
I copy the indicative premiums for Fundamental Sum Assured of Rs 5 lacs for various ages and premium fee phrases.
You’ll straightaway see a problem.
Sum Assured on Dying = Larger of (Fundamental Sum Assured, 7X Annualized premium).
Because the Fundamental Sum Assured is Rs 5 lacs, the minimal dying profit (Sum Assured on Dying) is lower than 10X Annualized premium for sections spotlight in RED.
In these instances, the survival profit will probably be taxable.
Therefore, with shorter premium fee phrases, you might face this tax drawback.
If you’re on this plan, do think about this side and select premium fee time period accordingly. Moreover, the Union Price range 2023 made maturity/survival profit from conventional plans with cumulative annual premium exceeding Rs 5 lacs taxable. Think about this side too.
A 30-year-old individual buys 12-year premium fee time period plan with Fundamental Sum Assured of Rs 5 lacs.
The premium earlier than taxes shall be Rs 44,275.
The primary-year premium incl. of 4.5% GST shall be Rs 46,267.
The premium within the subsequent years incl. of two.25% GST shall be Rs 45,271.
Survival profit
From the tip of the tip of 15th coverage yr, he’ll get 10% X 5 lacs = Rs 50,000 every year.
Since now we have assumed demise age to be 90 years, this fee will proceed for 90 – (30 + 15) +1 = 46 years.
Dying Profit
Assured additions will accrue on the charge of 40 * 5 lacs/1000 = Rs 20,000 every year for 12 years.
That makes it Rs 2.4 lacs.
Dying Profit = Fundamental Sum Assured + Accrued Assured Additions = Rs 5 lacs + 2.4 lacs = Rs 7.4 lacs
The XIRR for such an funding shall be 5.60% p.a. For demise on the age of 90 years.
If the demise occurs on the age of 80 years, the XIRR shall be 5.55%.
You should resolve if it is a adequate return for you.
Observe: For this very particular case, for the reason that Sum Assured on Dying (Rs 5 lacs) is greater than 10X annualized premium, the survival profit shall be exempt from tax.
LIC Jeevan Utsav (Plan no. 871): Do you have to make investments?
I’m not allowed to offer Black-and-white solutions.
Moreover, I’ve moved away from optimizing investments an excessive amount of. Now, I’ve grown to be OK with common investments that permit me to sleep peacefully. And you’ll have noticed this in my writings too.
As buyers, we could have completely different expectations from an funding product. As an illustration, I’ll favor an funding with doubtlessly larger returns (and better danger) however you might be snug with common however secure returns.
In any case, private finance is extra private than finance.
Let’s have a look at the nice factors.
A easy product.
From an investor’s perspective, this product is simple to grasp and relate to. I pay Rs X every year for the subsequent 5-16 years. Thereafter, I get Rs Y every year for all times. Then, after demise, the household will get some quantity.
Assured. No scope for confusion. Very simple to grasp.
Whether or not I like this product or not OR whether or not the returns are good or dangerous, these merchandise often discover enchantment amongst many buyers.
I can say this confidently as a result of my purchasers ask me this query very often.
I’ve this behavior of attempting to optimize issues and suggesting complicated options (not essentially good). Effectively, you have got free will.
The Not-so-good factors
Traditional lack of flexibility. You possibly can’t get up someday and resolve to exit this funding. You received’t get a lot of your funding again for those who exit pre-maturely.
The returns, regardless that assured, appear sub-par for a long-term funding. However that’s simply me. Your priorities/expectations could also be completely different.
A couple of factors you could think about
If you’re on this product, don’t ignore the tax angle.
As mentioned earlier on this publish, not all premium and premium fee time period mixture could meet the criterion for tax exemption (Minimal Dying Profit >= 10 X Annual Premium). Maintain this side in thoughts.
Within the instance I’ve thought-about, the survival profit is exempt from tax as a result of it meets the criterion. To your case and most popular mixture, that will not be the case.
The tax remedy can severely have an effect on your post-tax returns.
The returns from conventional plans additionally rely in your age. Each else being the identical, returns go down with entry age. I confirmed the returns for a 30-year-old. Your age could also be completely different.
The great half is which you could calculate your XIRR upfront (earlier than even buying the product). And resolve whether or not the returns are adequate for you.
Moreover, don’t forget concerning the tax change that occurred earlier this yr about tax remedy of conventional plans. For the standard plans purchased after March 31, 2023, if the cumulative annual premium exceeds Rs 5 lacs, the maturity/survival profit proceeds from such plans will probably be taxable.
Extra Hyperlinks/Sources
LIC Jeevan Utsav Brochure and Coverage Wordings on LIC Web site
Disclaimer: Registration granted by SEBI, membership of BASL, and certification from NISM under no circumstances assure efficiency of the middleman or present any assurance of returns to buyers. Funding in securities market is topic to market dangers. Learn all of the associated paperwork rigorously earlier than investing.
This publish is for training goal alone and is NOT funding recommendation. This isn’t a advice to take a position or NOT put money into any product. The securities, devices, or indices quoted are for illustration solely and should not recommendatory. My views could also be biased, and I’ll select to not deal with points that you just think about vital. Your monetary targets could also be completely different. You might have a special danger profile. Chances are you’ll be in a special life stage than I’m in. Therefore, you could NOT base your funding choices based mostly on my writings. There isn’t a one-size-fits-all resolution in investments. What could also be a very good funding for sure buyers could NOT be good for others. And vice versa. Subsequently, learn and perceive the product phrases and situations and think about your danger profile, necessities, and suitability earlier than investing in any funding product or following an funding strategy.