LIC Bima Shree (Plan no. 848): Middle class’s LIC Jeevan Shiromani

Deepesh Raghaw

8 years ago

LIC has recently launched a new moneyback plan: LIC Bima Shree (Plan 848).

The plan is quite similar to LIC Jeevan Shiromani, that was launched a few months back. There are only a few differences (or those that I could see).

LIC Jeevan Shiromani has an inbuilt critical illness plan. LIC Bima Shree does not have it. With LIC Bima Shree, you can purchase critical illness cover as a rider by paying an additional premium.
LIC Jeevan Shiromani has minimum Sum Assured of Rs 1 crore. With LIC Bima Shree, the minimum Sum Assured is Rs 10 lacs.

I chose to call LIC Bima Shree middle class’s LIC Jeevan Shiromani because the annual premium for the Jeevan Shiromani is beyond middle-income families. With a minimum Sum Assured of Rs 1 crores (Jeevan Shiromani), how many middle-class families can bear the annual premium running into lacs of rupees?

Only High Net Worth Individuals can bear such high premium. To be fair to LIC, such people were the target for LIC Jeevan Shiromani.

With LIC Bima Shree, the premium is affordable because the minimum Sum Assured is Rs 10 lacs (and not Rs 1 crore).

LIC Bima Shree: Salient Features

Minimum Age at Entry: 8 years (18 years in LIC Jeevan Shiromani)
Maximum Age at Entry: 55 years (for a policy term of 14 years), 51 years (for a policy term of 16 years), 48 years for a policy term of 18 years, 45 years (for a policy term of 20 years)
Maximum Age at Maturity: 69 years (for a policy term of 14 years), 67 years (for a policy term of 16 years), 66 years for a policy term of 18 years, 65 years (for a policy term of 20 years).
Minimum Basic Sum Assured: Rs 10 lacs
Minimum Basic Sum Assured: No Limit
Policy Term: 14, 16, 18 and 20 years
Premium Payment Term: Policy Term – 4 years e.g. For the policy term of 14 years, premium payment term shall be 10 years
Guaranteed Additions: Rs 50 (per Rs 1,000 of Sum Assured) for the first five years. Rs 55 ((per Rs 1,000 of Sum Assured) from the sixth year till the end of Premium Payment Term. Do note you get the benefit only at the time of maturity.
Settlement Option (exactly the same as LIC Jeevan Shiromani)
Loan Facility is available.
There are rebates on the mode of payment and for high Basic Sum Assured (life cover).

For more on LIC Bima Shree, please refer to the product page on LIC website.

LIC Bima Shree: Death Benefit

In the event of demise/death during first five years: Sum Assured on Death + Accrued Guaranteed Addition

In the event of demise/death after the completion of five years but before maturity: Sum Assured + Accrued Guaranteed Additions + Loyalty Addition if any.

Sum Assured on Death is the highest of:

10 times annual premium (this ensures maturity proceeds are exempt from tax).
Sum Assured on Maturity (discussed later)
125% of Basic Sum Assured

Please understand Guaranteed Additions are guaranteed and applicable every year (but are paid only the time of death or maturity).

Loyalty addition is applicable only in the year of death or maturity. Therefore, your luck can be a critical factor.

LIC Bima Shree: Survival Benefit/Moneyback Benefit

As mentioned earlier, LIC Bima Shree is a moneyback plan. This means that you get some amount from the life insurance company even before maturity. The quantum and the timing of moneyback amount depends on the policy term.

For policy term of 14 years: 30% of Sum Assured each at the end of 10^th and 12^th policy years

For policy term of 16 years: 35% of Sum Assured each at the end of 12^th and 14^th policy years

For policy term of 18 years: 40% of Sum Assured each at the end of 14^th and 16^th policy years

For policy term of 20 years: 45% of Sum Assured each at the end of 16^th and 18^th policy years

LIC Bima Shree: Maturity Benefit

For policy term of 14 years: 40% of Sum Assured + Guaranteed Additions + Loyalty Addition, if any

For policy term of 16 years: 30% of Sum Assured + Guaranteed Additions + Loyalty Addition, if any

For policy term of 18 years: 20% of Sum Assured + Guaranteed Additions + Loyalty Addition, if any

For policy term of 20 years: 10% of Sum Assured + Guaranteed Additions + Loyalty Addition, if any

Do note guaranteed additions are applicable every year. As mentioned, you get GA at the rate of Rs 50 per thousand of Sum Assured in the first year years. From the sixth year till the end of premium payment term, you get Rs 55 per thousand of Sum Assured. Remember GA is paid only in the year of maturity or death. Till such time, such GA are accrued.

Loyalty addition (LA) is like Final Additional Bonus. It is applicable only in the year of maturity or death (if demise happens after 5 policy years).

What about the premiums for LIC Bima Shree and LIC Jeevan Shiromani?

Since LIC Bima Shree does not have an inbuilt critical illness cover, you would expect the tabular rates for the plan to be lower than LIC Jeevan Shiromani.

At first, it may appear that this is not the case.

For instance, the first year premium for a cover of Rs 1 crore for a 40 year old (20 year policy term) would be Rs 7.41 lacs for Jeevan Shiromani and Rs 7.49 lacs for LIC Bima Shree. The premiums are before any rebate and GST.

Looks unfair when you pay higher cover for a lower coverage. Remember, you don’t have inbuilt critical illness cover in LIC Bima Shree.

However, there is a High Sum Assured rebate for LIC Bima Shree (that kicks in for the Sum Assured of Rs 1 crore). With the rebate, the premium comes down to Rs 6.99 lacs.

If you are contemplating purchasing Jeevan Shiromani for the inbuilt critical illness cover, you can assess the cost of the inbuilt critical illness cover. You are paying Rs 42,000 (7.41 lacs -6.99 lacs) for critical illness cover of Rs 10 lacs. Quite a bit.

LIC Bima Shree: What will be the returns like?

The return comprises three components.

Sum Assured (a portion you will get as money back and the remaining at the time of maturity)
Guaranteed Additions (As the name suggests, these are guaranteed upfront). Rs 50 per thousand Sum Assured for the first five years and Rs 55 per thousand Sum Assured for the remainder of the premium payment term. The GA get accrued and are paid only at the end of the policy term.
Loyalty Addition (To be announced and paid at the time of demise or maturity). This is not known upfront.

As you can see, the only variable is the Loyalty Addition. The first two components are known upfront.

For more on how Guaranteed Addition calculation will be calculated, suggest you go through the post on LIC Jeevan Shiromani.

Rather than guessing the rate of Loyalty addition at the time of maturity, I will assume different values and show the returns for all the rates.

I have considered investment by a 40-year-old in LIC Bima Shree for a term of 20 years. The Sum Assured is Rs 10 lacs.

You need to see if you will be happy with such rates of return for a long-term investment.

I won’t be.

You can do better with a combination of a term plan and public provided fund. If you can take some risk, do consider allocating some portion to equity funds too.