LIC Bima Diamond is a non-linked, with-profit, limited premium payment money back life insurance plan. This first line itself is a caveat enough for many suspecting investors.
LIC has launched the plan marking completion of 60 years of existence of LIC. The plan will be offered for a limited period up to July 31, 2017.
I have reviewed many plans from LIC before and have always held adverse opinion of traditional life insurance plans. I do not expect this plan to be any different.
Must Read: Problems with Endowment Plans
As per advertisement on LIC website, LIC Bima Diamond plan has six unique advantages.
- Maturity value: Nothing new
- Risk cover: Nothing new
- Money Back: Nothing new
- Loyalty Addition: Nothing new
- Extended Cover: This is not new. New Jeevan Anand provides a similar cover
- Auto Cover: This is new but is rather meaningless.
Salient Features (LIC Bima Diamond Plan)
- Minimum Sum Assured of Rs 1 lacs and maximum Sum Assured of Rs 5 lacs. ( I am not joking)
- Limited premium payment plan i.e. policy term is greater than premium payment term
- Three options available for premium payment, policy term (10/16, 12,20 and 15/24)
- Minimum age at the time of entry: 14
- Maximum age at the time of entry: 50 (for policy term of 16 years), 45 (for policy term of 20 years and 41 years (for policy term of 24 years)
- Extended cover period: You get policy cover even after policy maturity for half the policy term i.e. for policy term of 20 years, you get cover from the end of 20th year till 30th
Death Benefit (LIC Bima Diamond Plan)
In the event of death before 5 years, base Sum Assured will be paid.
No loyalty addition or bonus shall be paid. Loyalty addition is similar to Final Additional Bonus and is paid (applicable) only at the time of surrender, maturity or death.
In the event of death after 5 years and before maturity of the policy, Sum Assured on Death and Loyalty Addition shall be paid.
Sum Assured on Death is the highest of 10 times annual premium, Sum Assured on Maturity and Base Sum Assured. It will quite likely be Base Sum Assured.
During the extended cover period, death benefit will be half the Base Sum Assured.
Survival Benefit (LIC Bima Diamond Plan)
This is like any other money back policy where the insurer pays during the term of the policy.
Policy Term of 16 years: 15% of Basic Sum Assured at the end of each of 4th, 8th and 12th years.
Policy Term of 20 years: 15% of Basic Sum Assured at the end of each of 4th, 8th, 12th and 16th years.
Policy Term of 24 years: 12% of Basic Sum Assured at the end of each of 4th, 8th, 12th, 16th and 20th years
Maturity Benefit
Depends on the policy term.
Policy Term of 16 years: 55% of Base Sum Assured
Policy terms of 20 and 24 year: 40% of Base Sum Assured
In addition, you will also be paid loyalty additions, if any. Loyalty addition is similar to Final Additional Bonus. As I understand, Loyalty addition will be announced only in the year of surrender, maturity or death.
What is Auto Cover period?
Even if you do not pay premium, your life cover continues for a few months or years.
If you have paid premiums for 3 years but less than 5 years, auto cover period shall be 6 months.
If you have paid premiums for 5 years, auto cover period shall be 2 years.
Hence, even if do not pay premium, your life cover will continue in some form during the auto cover period.
In event of death during auto cover period, the nominee will be paid Sum Assured on Death (along with Loyalty addition). The caveat is that the unpaid premium amount will be deducted before making payment to the nominee. So, LIC is charging the unpaid premium along with interest. There is no free lunch.
Your policy would have already become paid-up after non-payment of premium (if you have paid premium for 3 years).
By introducing auto-cover period in this plan, your nominee can get Death Sum Assured instead of paid-up Sum Assured (in the event of demise during auto-cover period). Yes, good option for policy holders (or rather nominees of the policy holder).
However, given the maximum Sum Assured is Rs 5 lacs, it is much ado about nothing.
What about returns?
LIC Bima Diamond is a new plan with no available information about any bonuses or loyalty additions. However, it is not unwise to expect returns to be in the range of 4-6% p.a.
Cover of Rs 1 lac for a 30 year old for term of 20 years (premium payment term 12 years) will cost ~7,800 per annum. For this price, you will likely get a term cover of Rs 1 crore.
PersonalFinancePlan Take
It is not difficult to see that LIC Bima Diamond plan is structured in a way that agents can provide a spin to their sales pitch.
LIC Bima Diamond Plan is no different from other LIC endowment or money-back plans that I have reviewed in my previous posts.
That LIC shamelessly keeps packaging old wine in a new bottle and the agents’ manage to sell these plans repeatedly to the same customers always baffles me.
By the way, I have nothing against LIC. It is just that I don’t like the plans they come out with. Traditional life insurance plans from private insurers should be avoided too.
Traditional life insurance plans always fail in the basic purpose behind purchasing a life insurance cover i.e. of providing good life cover. What good is Rs 5 lacs life cover?
LIC Bima Diamond Plan is a big avoid.
You are better off purchasing a term plan and investing the rest in PPF or mutual funds.
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