LIC has launched a contemporary life insurance coverage product. LIC Jeevan Utsav (Plan no. 871).
On this publish, let’s break down LIC Jeevan Utsav and see the way it works.
The great and the dangerous factors, and the returns you’ll be able to anticipate. And eventually, do you have to make investments?
LIC Jeevan Utsav (Plan 871): Non-linked, Non-Collaborating Plan
Non-linked means LIC Jeevan Utsav is NOT a ULIP. It’s a conventional plan.
Non-participating plan means the returns from LIC Jeevan Utsav are assured. In different phrases, you’ll know upfront how a lot you’re going to get (and when) from the plan. No confusion surrounding bonuses and many others.
This additionally means you’ll be able to calculate XIRR (or internet returns) from this plan before you purchase the plan.
Observe “Assured returns” doesn’t imply good returns. Will also be poor returns. That’s one thing we are going to work out later on this publish.
For extra on various kinds of life insurance coverage merchandise and how one can decide inside 2 minutes which plan you might be shopping for, consult with this publish.
LIC Jeevan Utsav (Plan 871): Salient Options
- Non-linked and Non-participating plan
- Restricted premium fee plan: This implies coverage time period is longer than the premium fee time period.
- Complete Life Plan: Coverage will run till you might be alive. No idea of maturity right here. And that the demise profit will definitely be paid.
- Two variants: Common Earnings Profit and Flexi Earnings Profit
- Minimal Primary Sum Assured: Rs 5 lacs. No cap on most Sum Assured.
- Assured additions in the course of the premium fee time period.
- So, on this plan, after the premium funds are over, you get a hard and fast quantity yearly for all times. After you go away, the nominee will get the demise profit.
LIC Jeevan Utsav (Plan 871): Loss of life Profit
Within the occasion of demise in the course of the coverage time period, the nominee shall get:
Loss of life Profit = Sum Assured on Loss of life + Accrued Assured Additions
Sum Assured on Loss of life = Larger of (Primary Sum Assured + Accrued Assured Additions, 7 X Annualized Premium )
The demise profit can’t be lower than 105% of the full premiums paid.
Now, right here is spanner within the works.
Given the method for Sum Assured on Loss of life (SAD), it’s potential that the SAD could not exceed 10 X Annualized premium.
If Sum Assured on Loss of life doesn’t exceed (or equal) 10X Annualized premium, the maturity/survival profit is not going to be exempt from tax.
Observe that the demise profit will nonetheless be exempt from tax.
LIC Jeevan Utsav (Plan 871): Maturity Profit
Since it is a complete life plan, the coverage will run till you might be alive.
Therefore, no idea of maturity profit right here. Very like a time period life insurance coverage plan.
However the coverage has survival advantages, as we focus on within the subsequent part.
LIC Jeevan Utsav (Plan 871): Common Earnings Variant and Flexi Earnings Variant
That is about survival advantages.
Underneath the Common Earnings variant, the policyholder will get revenue equal to 10% of the Primary Sum Assured yearly. Till the coverage holder passes away.
When does the revenue begin?
As per the next desk.
The Flexi Earnings Variant just isn’t too completely different. It simply affords the choice to build up these annual payouts. So, you’ll be able to select to not obtain the payout and let the cash be with LIC.
The cash that’s not withdrawn will accumulate returns (curiosity) on the price of 5.5% p.a. till you withdraw.
You possibly can withdraw as much as 75% of the collected flexi profit (together with curiosity) as soon as in a coverage 12 months.
Since there may be not a lot distinction between the 2 variants, you’ll be able to change/specify the choice (common or flexi) till 6 months earlier than the beginning of the revenue profit.
LIC Jeevan Utsav (Plan 871): Assured Additions
Assured additions haven’t any position to play in calculation of survival profit.
Comes into play solely in calculation of demise profit.
Keep in mind Loss of life Profit = Sum Assured on Loss of life + Accrued Assured Additions
The calculation is kind of easy.
Yearly, till the tip of premium fee time period, the coverage will accrue Assured additions on the price of 40 per thousand of Primary Sum Assured.
So, if the fundamental Sum Assured is Rs 5 lacs and the premium fee time period is 10 years, then the coverage will accrue 40 X (5 lacs/1,000) = Rs 20,000 price of assured additions.
Observe that these assured additions will accrue solely in the course of the premium fee time period. As soon as the premium fee time period ends, no additional assured additions will accrue.
And this accrued quantity might be paid together with Primary Sum Assured might be paid to the nominee when the coverage holder expires.
LIC Jeevan Utsav (Plan 871): What are the returns like?
A great half about LIC Jeevan Utsav is you could calculate the XIRR (internet return) from this plan earlier than you make investments.
The one assumption you must make is longevity. How lengthy will you reside?
Why? As a result of the plan ends solely on demise of the policyholder.
For returns calculation, let’s assume that age of demise to be 90 years.
I copy the indicative premiums for Primary Sum Assured of Rs 5 lacs for various ages and premium fee phrases.
You’ll straightaway see a difficulty.
Sum Assured on Loss of life = Larger of (Primary Sum Assured, 7X Annualized premium).
For the reason that Primary Sum Assured is Rs 5 lacs, the minimal demise profit (Sum Assured on Loss of life) is lower than 10X Annualized premium for sections spotlight in RED.
In these instances, the survival profit might be taxable.
Therefore, with shorter premium fee phrases, you could face this tax drawback.
If you’re on this plan, do think about this facet and select premium fee time period accordingly. Moreover, the Union Funds 2023 made maturity/survival profit from conventional plans with cumulative annual premium exceeding Rs 5 lacs taxable. Think about this facet too.
A 30-year-old particular person buys 12-year premium fee time period plan with Primary Sum Assured of Rs 5 lacs.
The premium earlier than taxes shall be Rs 44,275.
The primary-year premium incl. of 4.5% GST shall be Rs 46,267.
The premium within the subsequent years incl. of two.25% GST shall be Rs 45,271.
Survival profit
From the tip of the tip of 15th coverage 12 months, he’ll get 10% X 5 lacs = Rs 50,000 every year.
Since we now have assumed demise age to be 90 years, this fee will proceed for 90 – (30 + 15) +1 = 46 years.
Loss of life Profit
Assured additions will accrue on the price of 40 * 5 lacs/1000 = Rs 20,000 every year for 12 years.
That makes it Rs 2.4 lacs.
Loss of life Profit = Primary Sum Assured + Accrued Assured Additions = Rs 5 lacs + 2.4 lacs = Rs 7.4 lacs
The XIRR for such an funding shall be 5.60% p.a. For demise on the age of 90 years.
If the demise occurs on the age of 80 years, the XIRR shall be 5.55%.
You need to determine if it is a ok return for you.
Observe: For this very particular case, because the Sum Assured on Loss of life (Rs 5 lacs) is greater than 10X annualized premium, the survival profit shall be exempt from tax.
LIC Jeevan Utsav (Plan no. 871): Must you make investments?
I’m not allowed to present Black-and-white solutions.
Moreover, I’ve moved away from optimizing investments an excessive amount of. Now, I’ve grown to be OK with common investments that permit me to sleep peacefully. And you’d have noticed this in my writings too.
As buyers, we could have completely different expectations from an funding product. For example, I could desire an funding with doubtlessly greater returns (and better danger) however you could be snug with common however steady returns.
In spite of everything, private finance is extra private than finance.
Let’s take a look at the great factors.
A easy product.
From an investor’s perspective, this product is straightforward to know and relate to. I pay Rs X every year for the following 5-16 years. Thereafter, I get Rs Y every year for all times. Then, after demise, the household will get some quantity.
Assured. No scope for confusion. Very straightforward to know.
Whether or not I like this product or not OR whether or not the returns are good or dangerous, these merchandise often discover enchantment amongst many buyers.
I can say this confidently as a result of my shoppers ask me this query very often.
I’ve this behavior of making an attempt to optimize issues and suggesting advanced options (not essentially good). Nicely, you’ve got free will.
The Not-so-good factors
Regular lack of flexibility. You possibly can’t get up in the future and determine to exit this funding. You gained’t get a lot of your funding again when you exit pre-maturely.
The returns, regardless that assured, appear sub-par for a long-term funding. However that’s simply me. Your priorities/expectations could also be completely different.
Just a few factors you should think about
If you’re on this product, don’t ignore the tax angle.
As mentioned earlier on this publish, not all premium and premium fee time period mixture could meet the criterion for tax exemption (Minimal Loss of life Profit >= 10 X Annual Premium). Preserve this facet in thoughts.
Within the instance I’ve thought of, the survival profit is exempt from tax as a result of it meets the criterion. To your case and most well-liked mixture, that is probably not the case.
The tax remedy can severely have an effect on your post-tax returns.
The returns from conventional plans additionally rely in your age. Each else being the identical, returns go down with entry age. I confirmed the returns for a 30-year-old. Your age could also be completely different.
The great half is you could calculate your XIRR upfront (earlier than even buying the product). And determine whether or not the returns are ok for you.
Moreover, don’t forget in regards to the tax change that occurred earlier this 12 months about tax remedy of conventional plans. For the standard plans purchased after March 31, 2023, if the cumulative annual premium exceeds Rs 5 lacs, the maturity/survival profit proceeds from such plans might be taxable.
Extra Hyperlinks/Assets
LIC Jeevan Utsav Brochure and Coverage Wordings on LIC Web site
Disclaimer: Registration granted by SEBI, membership of BASL, and certification from NISM under no circumstances assure efficiency of the middleman or present any assurance of returns to buyers. Funding in securities market is topic to market dangers. Learn all of the associated paperwork rigorously earlier than investing.
This publish is for training goal alone and is NOT funding recommendation. This isn’t a advice to speculate or NOT spend money on any product. The securities, devices, or indices quoted are for illustration solely and should not recommendatory. My views could also be biased, and I could select to not deal with facets that you just think about vital. Your monetary targets could also be completely different. You will have a distinct danger profile. Chances are you’ll be in a distinct life stage than I’m in. Therefore, you should NOT base your funding choices primarily based on my writings. There is no such thing as a one-size-fits-all answer in investments. What could also be a great funding for sure buyers could NOT be good for others. And vice versa. Due to this fact, learn and perceive the product phrases and circumstances and think about your danger profile, necessities, and suitability earlier than investing in any funding product or following an funding method.