Endowment plans were the darling of insurance companies, before ULIPs came into the picture. Over the years they might have lost their top slot but are not out of demand; conservative investors still prefer them for their survival benefits, which are missing in term plans. ‘LIC Jeevan Anand’ is one such popular endowment assurance plan which also comes with whole life benefits.

Product highlights/benefits

• An endowment assurance cum whole-life plan that provides survival benefits in the form of a lump sum at the end of term and also pays an additional sum assured to the nominee on the death of insured till the end of life
• In addition to sum assured, it pays simple reversionary bonuses and terminal bonus, if any

Highlights

It’s a unique endowment plan that offers whole life benefits at a little extra cost Whole life risk cover continues even after the premium paying term is over, till the death of the insured Double accident benefit is available during the premium paying term and thereafter up to age 70

• An additional accidental cover (up to Rs. 5 lakh) is paid as a lump sum on death due to accident, up to the age of 70. No additional premium required.
• Option to get extra protection at a very nominal cost
• Guaranteed surrender value up to 30 per cent of the total premium paid, excluding first-year premium and other riders’ premium after 3 policy years
• Policy available to people in the age group of 18-65 years. Premium paying term is 5-57 years.

Analysis

LIC Jeevan Anand provides the dual benefit of endowment and whole life plans, for a little extra premium. A 30-year-old individual will have to pay an annual premium of Rs. 20,978 for Rs. 5-lakh cover with a term of 25 years. Let’s see what benefits he will receive. LIC Jeevan Anand has a good bonus history since its inception in Feb. 2002. On an average, it has declared an annual bonus of Rs. 46.5 per thousand. For our calculation, we will take the average bonus at Rs. 45 per thousand (refer Table 1). Considering that LIC has distributed Final (Additional) Bonus (FAB) in its other schemes consistently, we assume an FAB of Rs. 550 per thousand in Jeevan Anand (in line with other schemes under similar conditions) at the end of term. As per Table 1, net return in this case comes to 6.60 per cent (approx.). Besides, the policyholder enjoys an accidental benefit of Rs. 5 lakh till the age of 70 and death benefit of Rs. 5 lakh (similar to the initial cover) till the end of his life. If we take into account these benefits, the return (gross of charges) will further increase for the policyholder.

Now take a look at Table 2. It presents endowment plans by other insurers. These plans are cheaper than LIC Jeevan Anand and have similar benefits. But they do not offer the whole life benefit.  Moreover, the bonus rates announced in these products are not at par with LIC Jeevan Anand.

Thus, at the outset, LIC Jeevan Anand looks a little expensive than plain vanilla endowment plans but given the benefits in later years, the additional cost is justified.

Equating with other products

We always advise against mixing insurance with investment. As there are no similar products available in the market, we will compare LIC Jeevan Anand with a combination of a term plan and PPF (based on their benefits). But the term plan will provide cover till the age of 65 only, unlike in Jeevan Anand where whole life benefits continue till the end of the individual’s life. One can also combine a whole life policy with PPF. But again the policyholder will need to pay premium till the end of his/her life. This sets LIC Jeevan Anand apart from other non-ulip policies. Now, let us turn to Table 3 for a comparative analysis between Jeevan Anand and other asset classes. The term plan (SBI Life Shield) has been taken for an individual of 30 years for a period of 25 years for a sum of Rs. 5 lakh at an annual premium of Rs. 1,632. An additional accident cum disability benefit (Royal Sundaram Accident Shield) for Rs. 5 lakh has been taken at Rs. 589 per year. The remaining amount of Rs. 18,757 has been invested in other asset classes for a period of 25 years as mentioned in the table 3.

Tax benefits

• Premium paid up to Rs. 1 lakh is tax exempt under Section 80C.
• Maturity or death proceeds are tax free under Sec 10(10D).

Things to look into

• The additional whole life benefit comes at an inflated price (refer Table 2).
• Reversionary bonus, though announced regularly, is not guaranteed. Moreover, Final Additional Bonus (FAB) is also not guaranteed.

Recommendations

• For whom: Conservative investors willing to put money for a longer period
• Risk: Capital safe, but loyalty benefits are linked to performance of the company in future
• Investment horizon: 5-57 years
• Returns (post tax): Moderate in line with debt funds at different conditions. But unlike debt funds, it provides tax benefits under Sec 80C in addition.
• Beats inflation: No, it won’t be able to beat inflation even in case of a longer term
• Tax bracket: Preferable for all tax brackets
• Alternatives: Whole life plan, PPF plus term plan, mutual fund (through SIPs) plus term plan, etc.

Insurance is an area where most mis-selling of products takes place in the country, and the root cause of this problem is the commission of insurance agents. Every year, insurance companies and insured persons lose a big chunk of their premium in paying distribution costs, including agents’ commission.
By selling single-premium products an agent earns a maximum commission of 2 per cent of the premium paid. On regular premium products, the commission is in the range of 15-30 per cent of the premium in the first year, followed by 5-7 per cent in subsequent years.
With the rates being so lucrative, it is but natural that most insurance agents are driven by commissions and sell products that bring in lots of money for them, without a thought to the customer’s needs or requirements. As a result, the poor investor always ends up a loser.
Hence, shifting the chaff from the grain to get a good insurance agent becomes all the more important. Given below are a few pointers which will help you evaluate a good insurance agent and keep away from the ones who only have their own interests at heart (instead of yours).

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1. Select with care
Do not go for the friendly neighbourhood agent, a friend’s friend or some relative, who works part-time as an agent, and is looking for potential customers. Such agents push products you may not need or want. What you need is a knowledgeable person, who uses his exposure in the industry to work out a deal that is best for you.
Acid test – If the agent identifies your needs, notes your goals and carefully presents products that will help you make the right choice to achieve your goals, then he/she is a good agent. Do keep in mind that you are the one who should take the decision and not the agent.

2. Check his expertise
This is an absolute must! The agent should know all his products. Check his knowledge by asking a lot of questions. Does he answer your queries or merely uses a lot of jargon, and does not explain the terms to you? Has he presented alternatives or is just pushing one product? Is he qualified to be an agent and what are his credentials?
Acid test – If the agent provides you a value proposition after understanding your needs and systematically presents products that suit your requirements, he is the right person.

3. Ask for references
You have every right to ask for references. Getting in touch with people who the agent has serviced will give you a good feel of his expertise, service and honesty. Take at least three references. Speak with them, reassure yourself in every way and conduct a reference check.
Acid test – If you get good references, you have nothing to worry about. If you get mixed reactions, ascertain the problem areas. Are they serious enough to impact your relationship with the agent? Is there an issue with core values? Do you need additional references? It may be a good idea to seek some more references and check on the specific problem areas. Only if you are comfortable, forge a bond with the agent.

4. Ascertain his honesty level and business ethics
To gauge a person’s honesty and business ethics may take time. It is a quality that is proven over time. But a little alertness can help you find out the agent’s level of honesty. Has the agent presented all the pros and cons of the product he is selling? Is he merely pushing a product for his personal gains?
Acid test – If the agent takes the time and effort to present the short- and long-term effects of the products and provides a comparison of the products that he has selected for you, without hiding the disadvantages, he is a good agent. Presenting facts without polishing them for personal gains is a sure sign that the agent is working towards providing the best solution for your needs.

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5. Check his customer focus
You need to ask certain questions to yourself like who will attend to your service needs once you have taken the policy. Is the agent willing to share his contact details and attend to your needs post sale? Or is he planning to assign a substitute to do the post-sale work?
Acid test – Even though it may be fine to speak with a substitute on some occasions, it is important that you have access to your agent when you need him. If the agent has shared his contact details and assured you that he is always available to serve your needs, he could be considered. But, do not just take his word for it. Check out his service record by asking for referrals and contacting some people to find out his service efficiency. This will do you good in the long run.

6. Check his financial planning skills
It is imperative that a good agent has adequate financial planning skills. Without these skills, he will not be able to identify the best possible product for you. Ascertain if the agent has asked you questions about your financial goals and needs, your family and income details, your short- and long-term needs, your risk appetite and time horizon for investment, your investment style and other questions related to your lifestyle.
Acid test – If the agent has taken care to chart out your personal profile by asking you all the relevant questions and then suggested products to suit these needs, chances are he is a good agent. By preparing an insurance plan, the agent has matched your requirements with the products and come up with the best possible solution for you. This will help you achieve your investment objective.

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7. Check your comfort level
What is your comfort level with the agent? Will you be able to deal with him for years to come? Is he trustworthy and honest? Will he help you achieve your goals? Your comfort level with the agent will help you build a long-lasting relationship. So go with the one that you are comfortable with.
Acid test – if your agent has focussed on building a relationship and made you feel comfortable by answering all your queries, chances are that he could prove to be a good agent. If you can see your agent playing an integral part in helping you meet your requirements, go for him. Your comfort level will go a long way in building a fruitful relationship.
Now that you know how to evaluate a good agent, don’t fall prey to the cookie-cutter types. Invest some time and effort in selecting a good agent. After all, you deserve a trusted advisor, who will truly help you achieve the life of your dreams.

Given the uncertainties caused by the volatile economic conditions, people look for a product that guarantees a regular monthly income for a longer period. Monthly Income Plans (MIPs) fit the bill. While some invest in MIPs for a regular income, others look at them from asset allocation perspective. The various agencies offering MIPs in India are Post Office, Mutual Funds, and Banks. The latest entrant is MetLife India Insurance. It is the first life insurer to launch an MIP – ‘Met Monthly Income Plan’ – which provides guaranteed regular monthly income along with other regular benefits like tax incentives and bonuses.

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Background

MetLife India Insurance Company Limited is a subsidiary of MetLife, Inc., a leading insurance provider in the world.  It is a joint venture (JV) between MetLife International Holdings, Inc., the Jammu & Kashmir Bank Ltd, and other private investors. For the last 30 months, MetLife India has been ranked among the top three fastest-growing life insurance companies in India. It bettered its performance by 40 per cent in the last financial year when the insurance industry was going through a lean patch.

Product highlights

• Guaranteed monthly regular income for a longer period, i.e., 15 years
• Limited premium payment terms i.e. 5 years and 10 years
• The minimum and maximum age for entry is 18 years and 65 years respectively
• Flexibility to choose policy term and premium payment term
• Limited pay options to suit an investor’s income cycle
• Accrued simple reversionary bonuses and terminal bonus, if any, as declared by the company

Benefits

• Monthly regular income for 15 years or 180 months after the end of the premium payment term
• Simple reversionary bonuses along with the terminal bonus, if any
• Guaranteed death benefit equal to 25 per cent of the sum assured plus all accrued bonuses (non-guaranteed), payable immediately on death, during and after the premium payment term
• Guaranteed monthly regular income after the death of insured – if the monthly income has already commenced, the remaining monthly income instalments will be paid to the nominee
• Guaranteed payment of an additional sum assured in case of accidental death, if Accidental Death Benefit rider has been opted by the insured

Analysis

Under MetLife Income Plan, a 40-year old requires to invest Rs 35,541 per year for a period of 10 years to get a monthly income of Rs 2,500 for the next 15 years. The person will start receiving income 180 months after the initial premium payment term of 10 years. His sum assured will be Rs 4,50,000, i.e., 180 times the monthly premium.

There will also be a maturity benefit of Rs 5,19,992 for him, at an annual growth of 10 per cent. Maturity benefit depends upon the flows of simple reversionary bonuses and terminal bonus declared by the company. Along with the policy, the person can also get a guaranteed accidental death benefit rider at a nominal cost. The rider pays an additional sum, equal to the sum assured opted, in case of unfortunate death of the insured due to an accident.

Equating with other products

There are ample MIP schemes in the market, offering guaranteed monthly returns. Some of the prominent ones are Post Office Monthly Income Scheme (MIS) and Bank-sponsored Monthly Income Plans (MIPs). However, these schemes do not provide guaranteed death benefit, which is limited to fund value or accumulated amount only, unlike Met MIP.

Now, let us compare Met MIP with the options providing similar benefits. Consider an investor who makes an annual investment of Rs 33,190 in PPF for 10 years and at the same time buys a pure term plan of Rs 5,00,000 at an annual premium of Rs 2,351 for 10 years. After 10 years, his PPF corpus will grow to Rs 4.81 lakh. This amount when invested in Post Office MIS will give a monthly income of Rs 3,205 pre-tax deduction or Rs 2,885 post-tax deduction under 10 per cent tax bracket along with a guaranteed bonus of Rs 24,040. The process continues for a period of 15 years, providing an additional income per month as highlighted in the Table.

Let us also look at a combination of PPF and LIC Jeevan Akshay VI with return of purchase price. Here, the PPF proceed is invested in LIC Jeevan Akshay VI which provides a monthly income of Rs 7,000  or  an annual income of Rs 33,670 for a 50-year old.

In case of Met MIP, if the company pays a bonus of Rs 5.2 lakh (not assured; the amount can vary based on company’s performance) at the end of term, the plan’s annualised return comes to 6.56 per cent as against PO MIS’ 7.87 per cent (which is assured) and LIC Jeevan Akshay’s 7.34 per cent. The annuity proceeds are taxable in the hands of the investor.

Tax benefits

Met Monthly Income Plan provides a tax benefit, of up to Rs 1 lakh on the total premium paid, under Section 80C of the Income Tax Act.

Things to look into

The plan talks about simple reversionary bonuses and a terminal bonus, which are not guaranteed; they will be applicable as and when declared by the company.

Recommendations

• Met Monthly Income Plan is a one-of-its-kind plan that offers MIP facility along with insurance cover.
• It is ideal for investors with no retirement plans whatsoever.
• Investors must have a premium payment term of at least 5 or 10 years.
• One can avail tax benefits under Section 80C on the premium paid per year.

How to invest in the plan?

Investors can buy the plan directly from any of the MetLife branches in India or its bank partners or through MetLife insurance advisors.

Summing it up

Met Monthly Income Plan is a unique product, which offers a combination of regular monthly income and insurance cover. However, the simple reversionary bonuses and the terminal bonus declared under this scheme are not guaranteed. If we take the bonuses out of it, the scheme gives a compounded annualised return of 1.92 per cent, which is minuscule compared to other MIP/MIS schemes generating a return of 7.5-8 per cent minus insurance cover. It is also an expensive product considering that for a monthly income of Rs 30,000 for 15 years, an individual aged 50 years needs to pay Rs 4.61 lakh per annum for 10 years. Thus, the plan is recommended for those who cannot manage the insurance cum investment part as illustrated above.

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Insurance industry in India has not taken off to a desired level, as is seen in the western countries. This leaves a lot of scope for innovation and experimentation, especially in products. Unit linked insurance plan (ULIP) is one such example. It is always marketed as a high-return product, but it does not come without its disadvantage – its hefty charges. Currently, there is no cap on the amount of charges being levied by insurers on ULIPs. But investors see a ray of hope in the ruling of the Insurance Regulatory and Development Authority (IRDA) which limit the initial charges.

What is the IRDA ruling?

The IRDA ruling says that life insurance companies can charge up to 3 per cent on gross yield of insurance policies up to 10 years and 2.25 per cent on policies with a term over 10 years, effective from Oct 01.

Let us assume these are the total charges, of which the fund management charges should not exceed 1.5 per cent and 1.25 per cent for policies up to 10 years and above 10 years, respectively.

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The ruling helps promote ULIP as a long-term investment product by lowering charges for policies with a term of 10 years or more than that. Let us see how.

On an average, the running costs of ULIPs in India work out to around 3.75 per cent of gross yield of policies with a term of 10 years. As per the new ruling, a fund earning gross yield of 15 per cent has to give a net yield of 12.75 per cent back to investors for a 10-year ULIP. Gross yield is the yield that does not take into account any charges while net yield takes into account all charges. Thus, the directive will help investors get an extra 1.5 per cent return on long-term policies.

Analysis

Let’s consider an example. Ramesh, 27, bought a ULIP with an annual premium of Rs 10,000 for 20 years.

The charge structure is as below:

Premium allocation charges – 20 per cent (1^st year), 5 per cent (2^nd, 3^rd year), and 2 per cent (remaining tenure)

Policy administration charge – Rs 60 per month (for the entire term)

Mortality charges – 0.142-0.389 per cent (taken from a standard ULIP; it may vary across products and age groups).

Fund management charge – 1.50 per cent (since it is an equity-oriented (growth) fund)

We have assumed that the fund would grow at 10 per cent, annually.

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The fund value at the end of 20^th year taking into account all charges is Rs 4.09 lakh while without charges grows to Rs 6.3 lakh. So, the net yield comes at 6.41 per cent. Now, the difference between gross yield and net yield is (10 – 6.41) per cent = 3.59 per cent.

Effect of current ruling

As per IRDA’s latest ruling, investors stand to get extra returns. In the above example, the yield difference of 3.59 per cent should come down to 2.25 per cent, which means a significant rise in yields up to 1.34 per cent for Ramesh. Refer Table 1 which explains the effect of recent ruling on the fund value on maturity.

Private sector employees and self-employed people have got one more retirement planning option in the form of New Pension Scheme (NPS) which was thrown open on May 1.

Any Indian citizen who is between 18 and 55 can opt for NPS which promises better returns on your savings. You entrust your savings with the NPS Trust and its six fund managers who in turn invest the money in three different asset classes – equity, government securities and debt instruments.

Read NPS vs Other Pension Schemes

There is not much fuss about getting a NPS account. Just approach a point of presence (PoP), submit the prescribed form with the required documents, and you are registered. Very soon, you will receive a Permanent Retirement Account Number (PRAN) by the Central Recordkeeping Agency (CRA) and there will also be a telephone and internet password to access your account over the phone and online.
NPS scores over schemes like PPF where there is a cap on the maximum investment in a year. Here, there is no upper limit, but the minimum amount you must invest is Rs 500 a month and Rs 6,000 a year. However, the investment should be done at least four times a year. You can select your fund manager at the time of first investment, you can also make a shift if you do not find the manager efficient enough, but this facility will be allowed after May 2010.
If you exit the scheme after you turn 60, you will get 60% of the invested amount as lump sum or in installments, depending on your preference. The remaining amount you need to use in buying a life annuity from an insurance company. But if you abandon the scheme before 60, you will get just 40% as a lump sum or in installments. In case of death of the subscriber, the nominee will receive the entire pension as a lump sum.
Charges:
In comparison with Mutual Funds the NPS wins hands down in terms of charges that you will have to face. Fund management charges are ridiculously low (0.0009% a year), as compared with mutual funds. The cost of opening and maintaining a permanent retirement account, and the transaction charge on changing address, pension fund manager, etc are around Rs 400 now.

Disadvantages:
While counting all the benefits of the NPS, you must also bear in mind that the returns are not guaranteed in this scheme. Also, there is not much clarity on tax benefits. As of now, one is eligible to get tax benefits under Section 80CCD of the Income Tax Act of India in this scheme. But unlike Employees Provident Fund and Public Provident Fund, tax will be levied on the withdrawal amount.
On the outset, it looks a good retirement option. But as it is said, ‘tread with care’.