Buoyed up by the success of Jeevan Aastha, its last guaranteed return plan, Life Insurance Corporation (LIC) has come out with another such plan. India’s biggest life insurer has launched LIC Jeevan Nischay – a single premium guaranteed return plan. This is a very conducive atmosphere for a product like Jeevan Nischay looking at the tight economy and an uncertain stock market. This is supported by the fact that mutual fund players booked profits by selling capital protection products in past few months. However, this is also true that though ‘Guaranteed Products’ like Jeevan Nischay offer investors an opportunity to earn assured returns while protecting their downside risk they also miss the upside potential, unlike in MF’s open-ended schemes or ULIPs, in case the market goes in favour of the fund.

Looking for Life Insurance products- Click Here

Background

Established in 1956, LIC has become a household name in India. It has sold over 3.58 crore policies and has assets under management (AUM) around Rs 8.74 lakh crore as on Sept 2009. It has built brand relationships with its policyholders and people of India through its wide spectrum of products covering all aspects of human life risks. LIC continues to be the indomitable market leader, with a market share of 62.45 per cent and 69.88 per cent policies as on June 30, 2009. The corporation has emerged as an institution of the masses, trying to help them bridge a gap arising out of their changing preferences and rising aspirations.

Product highlights

• ‘LIC Jeevan Nischay’ is a close-ended single premium plan, exclusively for LIC policyholders.

• It comes with guaranteed maturity benefits and a provision for loyalty additions.

• It offers policyholders flexibility to choose premium amount which will in turn decide their maturity sum assured.

• The minimum age and maximum age for entry being 18 years and 50 years, respectively.

• The policy is available for three different terms – 5, 7 and 10 years.

• The minimum single premium is Rs 10,000 and the maximum being Rs 10,00,000.

Benefits of ‘Jeevan Nischay’

• ‘LIC Jeevan Nischay’ provides maturity benefit – an amount equal to the Sum Assured – along with loyalty addition, if any, declared.

• Death benefit in the first year of the policy is five times the single premium.

• There is an incentive for high premiums paid, i.e., Rs 25,000 and above, which means a higher maturity sum assured for a policyholder.

• It provides guaranteed surrender value up to 90 per cent of the premium paid if the policy is surrendered after one year of its commencement.

• Loan facility is available after the first year of the policy.

• If the policyholder is not satisfied with the terms and conditions of the policy, he/she can return the policy within 15 days of the purchase date and get refund.

Ways to Smarter Insurance planning- Click Here

Analysis

Till date, LIC has rolled out different kinds of plans matching the needs and aspirations of different kinds of people. Its new product LIC Jeevan Nischay offers some exclusive benefits to its existing policyholders, helping the corporation cement its ties with its customers further. The plan offers policyholders guaranteed returns; the maturity sum assured is pre-defined here, thus, providing a guaranteed return to its investors. LIC also pampers its customers with an incentive if they pay a premium of Rs 25,000 and higher than that. Let’s see how the plan works for a 35-year old.

If the person invests Rs 25,000 in the plan for 10 years, he will receive Rs 44,674 as the guaranteed amount and Rs 8,935 as the variable component (refer Table 1) based on the performance of LIC (as computed by LIC in its benefit illustration). Thus, the annualised return for the person will be 7.93 per cent. However, the return will drop with the increase in the age of policyholders due to increased mortality rate. The different returns for different terms are mentioned in the table below.

Read Life Insurance guides – Click Here

Equating with other products

We do not recommend mixing of insurance with investment unless investment costs are very low and investment horizon is more than 15-20 years. In the past, there had been some guaranteed return insurance products such as LIC’s Jeevan Aastha, Aegon Religare’s Guaranteed Return Plan that provided returns in the range of 6.75-7.25 per cent. In comparison, Jeevan Nischay’s guaranteed returns fall in the range of 5.25-5.98 per cent. But if we include loyalty additions, based on LIC’s historical payments, the returns come in the range of 7.28-7.93 per cent.

Currently, the market does not have any similar comparable product. Nevertheless we can compare LIC Jeevan Nischay with a combination of a tax-saving FD and a term plan. The term plan provides a life cover of Rs 1 lakh for an assumed single premium of Rs 500. It provides returns in the range of 6.28–7.07 per cent, after deducting the net TDS at 10-20 per cent. Further a combination of NSC with a term plan will give returns in the range of 6.53–7.34 per cent. It will go down further for investors in higher tax bracket (30 per cent).

Tax benefit

LIC Jeevan Nischay provides tax benefits under Sec 80C of the Income Tax Act, where premium paid is eligible for tax deductions up to Rs 1 lakh. The maturity proceed is also exempt from tax under Section 10(10D).

Things to look into

The policy is strictly for existing LIC policyholders. But policyholders who have only an annuity or pension plan without risk cover cannot avail this plan. Loyalty additions or bonuses mentioned in the plan brochure are not assured.

Recommendations

Investment in this plan should be made with a view of getting some guaranteed return. Though insurance and investment is not an ideal mix, LIC policyholders with surplus cash can consider investing in the plan for assured income in this current volatile market. Jeevan Nischay’s tax-saving aspect is another reason why one should give it a try. The plan provides a tax-free return of 7.28-7.93 per cent as against other tax-deductible products that give a pre-tax return of 8-8.5 per cent which reduces further for those falling in higher tax bracket.

However, the RBI is set to roll back its expansionary monetary measures, resultantly, interest rates will shoot up (by the end of financial year 2009-10), and so will the deposit rates. Hence, it is likely that in pursuit of guaranteed returns, investors may lose a chance to earn higher interest in future.

Read Life Insurance Faqs- Click Here

How to invest in the plan?

LIC policyholders can buy the plan directly from LIC offices in India or the corporation’s bank partners or through LIC agents.

Summing it up

Guaranteed return products have found favour among Indian investors, especially among those who have burnt their fingers in the recent financial meltdown. To cash in on this, many insurance companies have introduced guaranteed return products. However, these products may carry higher risks arising from the fact that insurers may not honour their commitments. Thus, investors should not completely depend on guaranteed return products such as ‘LIC Jeevan Nischay’ instead they must strike a balance between these products and other products, securing and strengthening their portfolio.

To get a quote for this product please visit our Life Insurance Page

Related posts:

1. LIC Jeevan Saral – Review
2. LIC Jeevan Anand – Review
3. MetLife’s Monthly Income Plan – Review
4. Birla SunLife Dream Plan – Review
5. ICICI Prudential Pinnacle Guaranteed NAV- Review