LIC (Life Insurance Corporation) has launched LIC Jeevan Sugam which is a non linked Single Premium Limited Period Plan. This is third plan launch from LIC in last two months. The last two launches were LIC New Jeevan Nidhi Plan [a pension plan] & LIC Flexi Plus Plan [Unit Linked Insurance Plan].
These launches are timed between January to March every year, as this is the time when people invest blindly in anything that saves tax for them. Here is a quick review to let you know if its prudent to invest in LIC Jeevan Sugam?
LIC Jeevan Sugam – Features:
- This is Single premium payment plan
- Risk Cover: Death Benefit is 10 times the single premium
- Maturity Benefit: Maturity Sum Assured plus Loyalty Addition, if any
- Tax Benefit: The premium payable is exempted up to maximum of Rs 1 Lakh under sec 80C
- Loan: can be availed up to 60% of the surrender value as on the date of sanction of loan
LIC Jeevan Sugam – Eligibility:
The table below shows the eligibility for LIC Jeevan Sugam.
LIC Jeevan Sugam – Benefits:
- On death during first five policy years: 10 times the single premium (net of service tax) excluding any extra premium charged
- On death after completion of five policy years: 10 times the single premium (net of service tax) excluding any extra premium charged along with Loyalty Addition, if any
On maturity, the Maturity Sum Assured along with Loyalty Addition, if any, shall be payable.
Also, there is incentive for higher maturity sum assured:
Loyalty Additions depends on LIC experience with regard to policies issued under this plan
The policy can be surrendered for cash at any time during the policy term. The minimum Guaranteed Surrender Value allowable shall be as under:
- First year: 70% of the Single premium (net of service tax) excluding all extra premiums, if any.
- Thereafter: 90% of the Single premium (net of service tax) excluding all extra premiums, if any.
So you will lose money anytime you surrender.
LIC Jeevan Sugam – Benefit Illustration:
Since this product would be mostly sold as tax saving option, I would consider the following case for benefit illustration.
- Age: 30 years
- Maturity Sum Assured: Rs. 1,75,000. Due to incentive for higher sum assured, this would go up by 3.5% to Rs. 1,81,125
- Premium Payable: Rs. 1,01,507 (includes Rs. 3,043 as service tax). Have chosen premium of 1 Lakh as this is the maximum benefit under Sec 80C of income tax.
- Death Benefit: Rs. 9,84,640 (10 times the single premium excluding service tax)
- Loyalty Addition (assumed at 10%): Rs. 18,112
Total amount payable at maturity: Rs. 1,81,125 + 18,112 = Rs. 1,99,238
So you would invest Rs. 1,01,507 and after 10 years you might expect Rs. 1,99,238 in return.
The return comes to 6.98% compounded per annum.
This amount as of present Income Tax regulations is tax free.
LIC Jeevan Sugam – Age factor:
The premium for LIC Jeevan Sugam is dependent on age of the insured. So for the above maturity assured amount of Rs. 1.75 lakhs, a 30 year old has to pay Rs. 1.01 Lakhs, a 8 year old has to pay Rs. 96 thousand while a 45 year has to pay Rs. 1.32 Lakhs as premium. This would impact the effective yield badly.
In the above example and assuming 10% loyalty bonus, the effective annual compounded return would be 6.98% for 30 year old, 7.53% for 8 year old and 4.17% for 45 Year old. So you can see age makes a big difference in your returns.
How LIC Jeevan Sugam compares with PPF, FD & NSC + Term Insurance?
LIC Jeevan Sugam is a combination of debt investment and insurance for tax saving and hence the comparable investments are Fixed Deposits, NSC or PPF in combination with term insurance.
A 30 Year old can buy Rs. 10 Lakhs LIC Anmol Jeevan (term life insurance from LIC) for 10 Years at Rs. 17,120. So you would be left with Rs (1,01,507 – 17,120 = 84,387) to invest in PPF, NSC or FD.
We would consider 10 year NSC which has similar tenure and is eligible for tax benefit. So we would invest Rs. 84,387 in 10 Year NSC which is offering 8.7%. So at the end of 10 Years you would get Rs. 1,97,761. As per present income tax rules, the interest received on NSC is taxable as per respective tax slabs.
So following would be annual compounded return after taxation:
For calculating these returns we have considered principal as Rs. 1,01,507
|Tax Slab||Maturity Amount||Annual Compounded Return|
|No Tax Payable||197,761||6.90%|
|10% Tax Slab||177,392||5.74%|
|20% Tax Slab||157,022||4.46%|
|30% Tax Slab||136,653||3.02%|
Points to Note:
- The loyalty bonus for LIC Jeevan Sugam has been assumed to be 10%. The actual rates might vary.
- The LIC Term Plan considered above is costlier than its peers and hence opting for a different term plan would change returns calculation.
- Also the single payment for term insurance is inefficient compared to regular payment. You can read the comparison here.
LIC Jeevan Sugam – Premium Chart:
Below is the premium chart for LIC Jeevan Sugam.
Should you invest in LIC Jeevan Sugam?
I have always advocated the idea of keeping investment and insurance separate. In the example above we have considered that you necessarily take term insurance of 10 lakhs for 10 years. But you might be actually covered adequately for your life and then this plan makes no sense.
The other thing to note is you would mostly lose money in case you surrender this plan before maturity. This is not the case with NSC or Fixed Deposits.
Also keep in mind the age of the insured as in this policy age makes a big difference to the returns.