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Jeevan Varsha: Check before you buy!

Here's all that you would like to know about LIC's new policy, Jeevan Varsha; a regular/limited premium, money back plan available ONLY between Feb 16-March 31, 2009.

Kairav Shah

25 Feb 2009

January to March - welcome to the tax jungle.

We are in the midst of tax paying time and all of us with income to save from the tax authorities are running from pillar to post searching for newer and efficient instruments to save tax.

And who else knows this better than insurance companies who are ready with the eye-catching schemes. This is the period when they come out with the most dazzling range of products, aimed at your pockets.  

Many a times these can be confusing as well and recently launched Jeevan Varsha by Life insurance Corporation of India is no exception to this.   

After the success of Life insurance Corporation?'s Jeevan Aastha (launched 08 December 2008 and closed on 22 January 09) LIC has now launched Jeevan Varsha, a Money Back Plan with guaranteed additions.

Jeevan Varsha is a regular/limited premium, money back plan. Like Jeevan Aastha, it too is available for a limited period only, between 16 February 09 and 31 March 09.

The plan is available with two policy terms, nine and twelve years. The nine-year term offers guaranteed bonus of Rs. 65 per Rs. 1000 sum assured while the twelve-year term offers Rs. 70. For both tenures, the premium-paying term is the same ? 9 years; this makes the former a regular premium plan and the latter, a limited premium plan. Survival benefit is payable every three years.


Here are details of the survival benefit in this plan:


For 9-year term

15% of the sum assured is payable at the end of 3 years

25% of the sum assured is payable at the end of 6 years

60% of the sum assured is payable together with guaranteed additions, and loyalty addition, if any, at the end of 9 years

For 12-year term

10% of the sum assured is payable at the end of 3 years

20% of the sum assured is payable at the end of 6 years

30% of the sum assured is payable at the end of 9 years

40% of the sum assured is payable together with guaranteed additions, and loyalty addition, if any, at the end of 12 years

Another specialty of Jeevan Varsha is that premium payment is only through the Electronic Clearing System (ECS).

Here is a table that gives you the rate of return for various ages and sums assured for both tenures of this plan.

What the tables below tells us is that the rate of return on your investment in the money back plan is much lower, between 2.41% and 4.12%. This is quite less when compared to another tax-saving savings instrument such as the Public Provident Fund (ppf). The PPF gives out 8% compounded annually at present.

There is one scenario where the above insurance plan could work ? if you were to reinvest every bit of survival benefit payouts received at specific points during the policy tenure. And you will have to do this at a comparable rate of return. For instance, if you were to reinvest all the survival benefit received from your Jeevan Varsha plan at a minimum of 8% annual rate of return, your average return from the policy would be around 9.66%. But here is the catch ? typically, money back policies are bought with liquidity in mind for i.e. survival benefit amounts are there to be spent.

In conclusion, if you want to have insurance protection as well as a savings component, go for a term policy and pure investment/savings schemes such as PPF, Equity-Linked Savings Schemes (ELSS), and the like.

The sheer volume of advertisements and information provided by these during this time of the year is mind-boggling. Investors struggle to understand complex new products entering the market. All the flattering features, which seemed so sweet one day, turn out to be a nightmare a few days or weeks or months hence. But by then it?'s too late and inflation has begun to eat into the investment. So keep your investment and insurance separate. A money back policy is an expensive option to have both insurance cover and save for the future.

Note: Life Insurance Corporation of India (LIC) has clarified that 'Jeevan Varsha' has a provision of payment of Loyalty Additions at the time of mataurity or at the time of death claim (during the last policy year). This has not been factored in as per the Table 2 of the article. If the Loyalty Additions are factored, the return under the said plan could be slightly higher. 

Tables

Table 1

9-Year Tenure (9-Year Premium Paying Term)

Age/Term

Premium  (1 Lakh SA)

Compounded

Annual Rate of Return (RoR)

Premium  (2 Lakh SA)

Compounded

Annual RoR

Premium (5 Lakh SA)

Compounded

Annual RoR

20

15861

2.65%

31323

2.98%

77557

3.22%

25

15866

2.65%

31332

2.97%

77581

3.21%

30

15881

2.62%

31362

2.94%

77655

3.19%

35

15920

2.56%

3140

2.88%

77851

3.13%

40

15994

2.44%

31587

2.76%

78218

3.01%

45

16131

2.22%

31862

2.54%

78904

2.78%

50

16361

1.86%

32322

2.18%

80056

2.41%


Table 2


 

 

 

 

 

12-Year Tenure (9-Year Premium Paying Term)

AGE/TERM

Premium  (1 Lakh SA)

Compounded

Annual Rate of Return (RoR)

Premium  (2 Lakh SA)

Compounded

Annual RoR

Premium (5 Lakh SA)

Compounded

Annual RoR

20

16170

3.76%

31940

3.96%

79100

4.12%

25

16179.8

3.75%

31960

3.95%

79149

4.11%

30

16199.4

3.73%

31999

3.93%

79247

4.09%

35

16253.3

3.68%

32107

3.88%

79517

4.03%




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