Review: LIC Jeevan Shiromani (Benefit, Features, Returns): Should you invest?

LIC Jeevan Shiromani is a traditional money back plan. It has a flavor of both participating and non-participating life insurance plans.

You get certain guaranteed benefits (known upfront) and certain benefits are linked to the investment performance of LIC.

Let’s look at some of the salient features of the plan and see if you should invest in such a plan.

LIC Jeevan Shiromani: Salient Features

1. Minimum Age at Entry: 18 years
2. Maximum Age at Entry: 55 years (for policy term of 14 years), 51 years (for policy term of 16 years), 48 years for policy term of 18 years, 45 years (for policy term of 20 years)
3. Maximum Age at Maturity: 69 years (for policy term of 14 years), 67 years (for policy term of 16 years), 66 years for policy term of 18 years, 65 years (for policy term of 20 years).
4. Minimum Basic Sum Assured: Rs 1 crore (Clearly, the target segment is High Networth individuals)
5. Minimum Basic Sum Assured: No Limit. The increase in Sum Assured shall be in multiples of Rs 5 lacs.
6. Policy Term: 14, 16, 18 and 20 years
7. Premium Payment Term: Policy Term – 4 years e.g. For the policy term of 14 years, premium payment term shall be 10 years
8. 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.
9. Inbuilt Critical Illness Coverage (to be discussed later)
10. Settlement Option (to be discussed later)
11. Loan Facility is available.
12. There are rebates on the mode of payment and for high Basic Sum Assured (life cover).

LIC Jeevan Shiromani: Death Benefit

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

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

Sum Assured on Death is the highest of:

1. 10 times annual premium (this ensures maturity proceeds are exempt from tax).
2. Sum Assured on Maturity (discussed later)
3. 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 Jeevan Shiromani: Survival Benefit/Moneyback Benefit

As mentioned earlier, LIC Jeevan Shiromani is a money back plan. This means that you get some amount from the life insurance company even before maturity. The quantum and the timing of money back 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 Jeevan Shiromani: 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, such GA are accrued.

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

LIC Jeevan Shiromani (Return calculation)

As mentioned above, LIC Jeevan Shiromani is a midway between a non-participating and a participating plan.

There is an element of return that comes through Guaranteed Additions(GA). You know about Guaranteed additions upfront.

There is an element of return that comes through Loyalty Addition, which is participating (profit sharing in nature).

Since LIC Jeevan Shiromani is a new plan and we can’t predict about loyalty addition that will be applicable after 20 years, we have to work with a set of assumptions.

Let’s work out the numbers for a 40 year old male who wants to purchase cover for Rs 1 crore (that’s the minimum cover under the plan). He wants to go for policy term of 20 years.

The premium before GST and rebate will be Rs. 7,41,500. After rebate of 2% on tabular premium and GST, the premium comes to Rs 7.53 lacs per annum.

The annual premium needs to be paid for 16 years for a policy term of 20 years.

Calculation for Guaranteed Additions (GA)

You get Rs 50 per Rs 1,000 of Sum Assured for the first five years. That means Rs 5 lacs (50/1,000* 1 crore) for the first five years.

For the remaining 11 eleven years, you get Rs 5.5 lacs each year (Rs 55 per thousand of Sum Assured)

Note the GA are not paid out to you every year. These simply get accrued.

At the time of policy maturity, total accrued GS will be Rs 85.5 lacs.

Calculation for Loyalty Addition (LA)

Now, this is a pure guess. Therefore, rather than working with a single assumed value of Loyalty Addition, I will show you potential returns for multiple values of LA.

Please understand, at the time of sale, you may be given a very rosy picture of Loyalty Addition.

Now, you need to see if such a return is good for a long-term investment of 20 years.

In my opinion, it is not.

Yes, this investment has an inherent life coverage of Rs 1.25 crores too. However, the return is still quite bad.

I leave it to you to develop a similar structure with the help of a term plan and a mix of PPF and equity funds. I have done this many times in my other posts on LIC plans. Do not intend it repeat the exercise again.

LIC Jeevan Shiromani: Critical Illness Benefit

In case you are diagnosed with any of the 15 critical illnesses (as mentioned in the document), you will get 10% of the Basic Sum Assured. For a policy with Basic Sum Assured of Rs 1 crore, you will get Rs 10 lacs if you are diagnosed with a specified critical illness.

Additionally, you have an option to defer the payment of premium by 2 years. No interest shall be charged for delay in payment of premium for such reason.

You also have an option to go for a second medical opinion.

Specified critical illnesses include cancer, heart attack (myocardial infarction), kidney failure, organ failure etc.

As I have mentioned in an earlier post, Critical Illness insurance plans have specified severity (and waiting periods) and that can be a reason for many claim rejections. Essentially, the insured event is not as objective as in the case of life insurance.

Do note this Critical Illness benefit can be availed just one during the policy term. Once you avail the benefit, the benefit terminates.

As I understand, this is an additional benefit and not accelerated benefit.  This means your death or maturity benefit does not go down on payment of critical illness benefit.

Read: All you need to know about life insurance riders

LIC Jeevan Shiromani: Settlement Option

Under the Settlement option, you can choose to receive the maturity or death benefit in installments over a few years instead of a lump sum.

Therefore, instead of receiving the benefit in lumpsum, you can choose to take the benefit in monthly, quarterly, half-yearly or annual installments for 5, 10 or 15 years.

The size of installment will depend on maturity/death benefit amount, duration of the installments (5, 10 or 15 years) and the interest rate as fixed by LIC from time to time.

If you fall for the Settlement option, you will end up making a big fool of yourself. LIC will invariably announcement a very low rate.  In the policy brochure, there was an option to defer survival benefits too. On the amount, LIC is paying 5 year GSec – 1.5%.  I am not joking. Therefore, it makes little sense to defer the receipt of survival benefit.

You can’t expect the interest rate to be much different for settlement option.

Should you invest in LIC Jeevan Shiromani?

As with any traditional plan, stay away from LIC Jeevan Shiromani.

LIC Jeevan Shiromani lets you purchase a very big life cover. However, it is very expensive.

You still get very low returns (as shown in the illustration).

The other issues with traditional plans including little flexibility and high exit cost plague this plan too.

You are better off purchasing a term plan and investing the rest in PPF or mutual funds. If you are keen on a critical illness insurance plan, purchase a standalone critical illness insurance cover.

Additional Links

For more on LIC Jeevan Shiromani, you can refer to products page on LIC website.

You can also go through LIC Jeevan Shiromani policy wordings on LIC.

1. LIC New Jeevan Anand
2. LIC New Money Back Plan-25 years
3. LIC Children’s Money Back Plan
4. LIC Jeevan Tarun
5. LIC New Endowment Plan
6. LIC Jeevan Labh
7. LIC Bima Bachat
8. LIC Jeevan Umang
9. LIC Jeevan Utkarsh
10. Problems with Endowment Plans