Thursday 16 May 2013

Review of LIC Jeevan Anand Policy

LIC Jeevan Anand Policy is one of the most popular LIC Endowment Policy (cum Wholelife). The fact that makes it so popular is the triple benefits the policyholder enjoys under this scheme – death, maturity and post maturity benefits.

Due to its popularity, many advisors recommend Jeevan Anand LIC Policy as a one-stop financial solution to investors. However, an investor should always be informed about the difference between a pure insurance product, a pure investment product and insurance cum investment product (such as LIC Jeevan Anand Policy). Other LIC plans include LIC Jeevan Arogya and LIC Jeevan Nidhi Policy

How LIC Highest NAV Plan Works
So, here’s a quick analytical comparison between LIC Jeevan Anand Policy and a pure investment product – a current top performing Equity mutual fund scheme. For our comparison, we have chosen HDFC Top 200 Fund which is one of the best mutual fund in India – as equally popular as Jeevan Anand LIC Policy
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Comparison Parameter
LIC JEEVAN ANAND
HDFC TOP 200
Investment Objective
Provides financial protection against death throughout the lifetime of the policy holder along with the provision of payment of a lump sum at the on maturity and extended life cover (for a specified period) after maturity.  It is a with-profits policy and bonuses will be added during the selected term or till death, if it occurs earlier. Final (Additional) Bonus may also be payable after the policy has run for certain minimum period.
To generate long-term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from companies in BSE 200 Index.
LIFE COVER
A) Death benefit:The Sum Assured along with the accumulated bonuses is payable in a lump sum.  B) Maturity/survival benefit:The Sum Assured along with the accumulated bonuses is payable in a lump sum on survival/maturity.

Note:
  • An additional Sum Assured (subject to a limit of Rs.5 lakh) is payable in a lump sum on accidental death up to age 70 of life assured.

  • In case of permanent disability of the life assured due to accident, this additional Sum assured is payable in instalments.
No Life Cover Available
In-Between Withdrawals
Surrender Values are available on the Plan:  A) Guaranteed Surrender Value -The policy may be surrendered after it has been in force for minimum 3 years. The Guaranteed Surrender Value is 30% of the basic premiums paid excluding the first year’s premium.

Note: Any extra premium(s) paid and premium(s) towards Accident Benefit are also excluded.

B) Special Surrender Value – Guaranteed Surrender Value + Variable benefits with returns based on the future performance of LIC.
Allowed anytime, subject to conditions: 
Within 1 year of investment: Exit load at 1% applies;





After 1 year of investment: Free withdrawals.
Returns
A) Fixed/Guaranteed Returns:  (i) Natural death: Sum Assured
(ii) Accidental death: 2xSum Assured
None as it is a stock-market related investment.
B) Bonus Return: 

Last 5 years’ Average Return on a policy with term upto 10 years has been: Rs 3,400/Rs 1 Lakh Sum Assured or 3.4%p.a.;

The Projected Investment Rate of Return assumed is 6% p.a. and 10% p.a.
  Last 5 years’ Average Return from the Scheme: 12.28% p.a.

Benchmark Return (for the same period): 8% p.a.
Risk
No risk investment
Returns are related to stock market performance.Capital is invested in Indian companies as per the investment objective.  Chance of capital loss exists due to stock market exposure.
Investment Type
Investment Type: Regular premiums (monthly, quarterly, half-yearly or yearly); 
Premium paying term: Regular until policy term
Investment type can be:1) Lumpsum; or/and 2) SIP Facility

Investment Term: As per investor’s choice.
Tax Benefits
At the time of investment: Premium paid uptoRs 1 lakh per annum is exempt under section 80C of the IT Act. 

Maturity/Death Benefits: Fully Tax Exempt under section 10 (10D) of IT Act.





Note: Tax exemption under section 80C available if the Premium is upto 20% of the Sum Assured.
At the time of investment: Investment of uptoRs 1 lakh per annum is exempt under section 80C of the IT Act. 
Withdrawal within 1 year: Short-term capital gains tax @ 15% applies;

Withdrawal after 1 year: Fully tax exempt under current tax laws.


Note: Only ELSS (Equity-linked tax saving schemes) schemes are tax exempt.
How is adds up?
For a Male/Female non-smoker aged 30 years:  Sum Assured (SA): Rs 10 Lakhs;
Term period: 10 years;
Premium paying term: 10 years:
Premium payable is Rs 10,668 (Monthly).

Total premiums payable: Rs 12,80,160.

Benefits:
A) Death Benefit-
(i) Natural Death:Rs 10 Lakhs;
(ii) Accidental Death:Rs 20 Lakhs

B) Maturity Benefits:Rs 10 Lakhs + Accumulated Bonus (say, 3.4% of SA every year + Final (Maturity Bonus) depends upon LIC’s market returns.  The Projected Investment Rate of Return assumed is 6% p.a. and 10% p.a.
C) Post Maturity Benefits: Continued Life cover (for the said Sum Assured) for a specified period (say until 70 years’ age) without having to pay any further premiums.
To accumulate: Rs 10 Lakhs;In time  period: 10 years; Assumed rate of return of 12% p.a.
Monthly investment required:Rs 4,300


Therefore, total investment to be made: Rs 516,000









Note: Mutual Fund investments are related to stock market performance.
This is not a capital guarantee product.
Chance of capital loss exists due to stock market exposure.


Conclusion: Therefore, as seen from the above comparison between LIC Jeevan Anand and top performing mutual funds like HDFC Top 200, Jeevan Anand provides more benefits as a life insurance product than an investment product.
Also, the average return of past years and the huge difference in monthly investible amount makes the best mutual funds like HDFC Top 200 superior to Jeevan Anand Plan although Jeevan Anand is attractive considering the triple insurance covers and non-guaranteed bonus available.
LIC Jeevan Anand Policy is not a one-stop financial solution and therefore, needs to be teamed-up with other pure life covers and equity investments to provide maximum advantage to one’s dependents while simultaneously setting aside money for future dreams.

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