LIC of India(new jeevan anand) – Why these kind of polices are bad?
When we are about to take a Life Insurance Policy, then first LIC of India name comes into our mind. LIC of India is backed up by Government of India. Lic is offering so many varieties of plans. But some plans are not good for you at all. They will destroy your wealth.New Jeevan Anand policy is famous in LIC OF INDIA.
Life Insurance will cover the risk of dying too early and risk of dying too late.
Hench, Life Insurance Corporation if it covers above said two risks. But the real problem comes when it is trying to behave differently from its main objective.
Some plans in Lic are not good for you. To understand why they are not good, first, you should know maturity, the interest rate and the insurance coverage in those plans.
Different Kind of Policies that Lic of India offers are…
Lic offers a different kind of life insurance plans.
- Endowment Type Policy
- Money Back Policy
- . Unit LInked Insurance Plan
- Whole Life Plans
- . Annuity Plans
- Pension Plans
The endowment, Money Back Plans in Lic Of India, its features and Maturity…
-
Endowment Plan…
Jeevan Anand in Lic an example for Endowment type plan.
In this type of plan, maturity will be paid once total policy term is completed, and if the policyholder dies before the maturity then sum assured along with the bonus(if any) will be paid to the nominee.
If the policyholder is alive, nothing will be paid to him/her before maturity.
2.Money Back Plan…
In this type of plan, all the features are same as above, But the only difference is policyholder will get some money back every 5 years or 4 years depending on the policy terms and conditions.
What is the Maturity in Endowment, Money Back plans?…
Endowment Plan Maturity Value is given below. Assumptions taken for the Calculation are…
Sum Assured Rs.1,00,000 and the premium paying term is 20 years.
Maturity Value in Endowment(New Jeevan Anand) = Sum Assured + no. of thousands in the policy*bonus* no. of years premium paid.
Here, Sum Assured = Insurance Coverage in the policy.
i.e Rs.1,00,000 in above example.
Bonus per thousand Sum Assured = Rs.41
See the bonus rates given by Lic of India recently
You can check your self LIC bonus rates in this link. Click this Link.
Now let’s calculate the maturity amount for New Jeevan Anand policy for a 15-year term. Age of the Policyholder is 30 years, and the premium is 8548.
Maturity in New Jeevan Anand Policy = number of thousands in sum assured
=*bonus*numbers of years premium paid
+ Sum Assured.
=100*41*15+100000
=161500
You can check premium in New Jeevan Anand premium calculator in this link. Click here to check.
In money back plans also the money back calculation is much similar.
But the only difference is we have to deduct the money backs received in the sum assured part while calculating maturity amount.
For example, a 20-year term 1 lakh sum assured policy it has 20% of the sum assured at end 5th, 10th, 15th years, then while calculating maturity formulae is = 40% of Sum assured(as already 60% received in money backs)+total thousands in the sum assured*bonus*policy term.
What is the interest rate Lic Policy( New Jeevan Anand Policy)…
The interest rate in New Jeevan Anand Policy can be calculated by using IRR FUNCTION excel.
For this, we need cashflows which you are paying and which LIC(new Jeevan Anand is paying to you.
The premium of for 1 lakh Sum assured for a 30-year person is Rs.8548 per year, and maturity after 15 years is Rs.1,61,500.
Now let’s calculate the IRR from above cash flows to arrive to the interest or return from NEW JEEVAN ANAND POLICY.
| 0 | -8548 |
|---|---|
| 1 | -8548 |
| 2 | -8548 |
| 3 | -8548 |
| 4 | -8548 |
| 5 | -8548 |
| 6 | -8548 |
| 7 | -8548 |
| 8 | -8548 |
| 9 | -8548 |
| 10 | -8548 |
| 11 | -8548 |
| 12 | -8548 |
| 13 | -8548 |
| 14 | -8548 |
| 15 | 161500 |
| IRR | 2.83% |
If you see the above table carefully, it is evident that the return or interest you will get from the new Jeevan Anand policy is only 2.83% which is much below than the savings bank account.
If you are taking endowment, money back plans form Lic of India or from any other life insurance company for the purpose of investment, then the situation is same just like in the above table.
Always remember investment means it should give a return over and above inflation(read about inflation).
In India, the last 35 years average inflation is around 6 % to 7%, Endowment, money back plans never given more return than inflation.
Life Insurance companies and agent argue the interest rate will be more if you pay for 25 years or more, that is trash it does not make much difference to the return we got in the above table.
Insurance and Investment should be not mixed. Click this link to read.
What to do to avail life insurance to protect your family?…
You may argue that you need life insurance to protect your dependents in case of your absence.
Here, you have an alternative option to having life insurance for protecting your dependants in the form term life insurance.
Term Life Insurance pure risk only, there is saving component in it and you can have higher cover in lakhs and cores unlife endowment, money back plans where you will get very less cover for paying a high premium.
How much Life Insurance Do you need to take?…
Now, you understood while planning to take life insurance to protect your dependant’s Term Life insurance is advisable.
But how much risk coverage policy you should take under term life insurance is not known to you.
There are two methods to calculate the Life Insurance requirement. 1. Human Life Value or Income Replacement 2. Need-based Method or Expenses Replacement.
Human Life value calculation involves the corpus you have to leave your dependant’s which is equal to your future wealth creation potential from your salary or Income. Click this link to read about human life value.
Need-based Method calculation for Life Insurance requirement will tell you how much wealth that you have to leave so all your financial obligations are met even if you die suddenly like spouse living expenses till her life expectancy, special needs like child higher education and house buying and all of your existing loans.
Click this link to read about Need-based Method for life insurance requirement.
Conclusion…
You can choose any one of the above two methods to calculate the life insurance required to take.
Never take any endowment, money back policies from Lic of India or from any other life insurance company.
It will destroy your wealth creation and also you are not properly insured under these plans.
Hence your family is not fully protected under endowment and money back plans.
Always take term life insurance using Human Life Value or Need-based method.
Also read, If you are a state Government Employee.
Why State governments(apgli/tsgli) should modify the insurance run by state governments. Click here to read.
Also, read about Mwt act benefit in life insurance. Click here to read.
Also, read Investment future value Calculation method. Click here to read.
