Stay away from LIC Jeevan Utkarsh

Deepesh Raghaw

9 years ago

LIC Jeevan Utkarsh review disability insurance

LIC has come out with a new packaging. The reason I say this is that the product is not too different from older ones but comes with a new name.

The plan was launched early September 2017 and will be available for 270 days from the date of launch. Why? I have no clue. In my opinion, it is a marketing gimmick. Scarcity may shore up demand.

As I have mentioned before, I have nothing against LIC and everything against traditional life insurance plans. All the private life insurance companies come out with traditional life insurance plans. I don’t like those plans either.

LIC Jeevan Utkarsh is a non-linked participating, single premium life insurance plan.

LIC Jeevan Utkarsh: Salient Features

Minimum Entry Age: 6 years
Maximum Entry Age: 47 years
Minimum Basic Sum Assured: Rs 75,000
Maximum Basic Sum Assured: No limit
Policy Term: 12 years
Premium Payment Mode: Single Premium (We will see why this is a problem)
Loan Available after 3 months

Please visit LIC website for more details about the plan.

Here is what you must know.

Maturity Proceeds from LIC Jeevan Utkarsh will NOT be taxable

You will most likely not be told this at the time of sale.

Since LIC Jeevan Utkarsh is a single premium plan, the premium will most likely be more than 10% of Sum Assured. And when the premium is more than 10% of Sum Assured, the maturity proceeds are taxable.

Under single premium plans, you have to pay the premium just once (and not annually). Therefore, it is quite likely that premium will most likely be more than 10% of Sum Assured (death benefit). And when the premium is more than 10% of Sum Assured, the maturity proceeds are taxable.

Something similar would have happened in case of Jeevan Utkarsh too. However, LIC smartly circumvented the issue by specifying the Death benefit as atleast 10 times tabular single premium. I had completely skipped this aspect until a reader (Ravi) pointed out in one of the comments.

For instance, as per LIC website, the single premium for a 30 year old for Rs 10 lac Sum Assured will be ~ Rs 5.6 lacs. Clearly, the premium is more than 10% of Sum Assured. However, since the death benefit will be 10 times single premium i.e. Rs 56 lacs, the proceeds will not be taxable.

A point to note is that the death benefit is 10% of tabular single premium. In case, after underwriting, your premium is increased due to any existing medical condition, your maturity proceeds may not be exempt from tax.

Please understand payout from the plan in the event of death of the subscriber will still be exempt from tax.

Read: The Problem with Single Premium Life Insurance Plans

Read: Benefits from LIC Bima Bachat Plan are taxable

Point to Note: In case of Single premium plans, there is a question mark over how exactly the maturity proceeds will be taxed (at least I am not sure), if those are taxed. Some argue that the entire maturity proceeds will be taxable while others say that the premium paid shall be deducted from the maturity amount before taxes apply. Perhaps, a good CA will guide you better.

By the way, taxation of maturity proceeds is a common problem for single premium plans. Another single premium plan from LIC, LIC Bima Bachat plan, has a similar problem. Good that LIC has avoided the issue in this plan.

However, do note nothing comes for free. Better death benefit is likely to show up in even poorer returns.

What I am sure about is that the maturity proceeds are taxable.

This is a good enough reason to stay away from LIC Jeevan Utkarsh.

What will be the returns like?

LIC Jeevan Utkarsh is a participating plan. Therefore, the returns will depend on the loyalty additions announced by the company at the time of exit (death, maturity or surrender) from the plan. Therefore, it is difficult to put a number to it. More so, because the return depends on one-time announcement (unlike reversionary bonus that is announced every year).

However, don’t expect returns to be higher than 4-6% p.a. Quite bad for the long term.

Remember this is pre-tax. Since the maturity proceeds are likely to be taxable, the post-tax returns will be even lower.

Low life cover and abysmal returns, I cannot see any reason why you should go for LIC Jeevan Utkarsh.

For the sake of completion, let’s consider a few other aspects about LIC Jeevan Utkarsh.

Death Benefit

After the date of commencement of risk, in the event of demise of the policy holder, the nominee will get

Sum Assured on Death + Loyalty Additions, if any.

Where Sum Assured on Death is the highest of,

125% of the Single Premium
Basic Sum Assured
10 times Tabular Single Premium (will exclude any loading after underwriting). This is what made the maturity proceeds exempt from tax.

Loyalty Additions shall be applicable only if you have completed 5 years in the policy. Therefore, no loyalty addition to be paid if the demise happens before 5 years.

To give an idea of the level of premium, I copy this table from LIC website

For instance, if you are 40 years old, you will pay a premium of Rs 6.57 lacs for a Sum Assured of Rs 10 lacs (death benefit will be Rs 65.7 lacs). There will be GST @1.8% applicable too. There is rebate available too for higher Sum Assured but the premium will still be about Rs 6.45 lacs (after GST)

Read: How GST affects your Insurance Premium?

Maturity Benefit

At plan maturity i.e. after 12 years, you will get Sum Assured along with Loyalty Addition.

Settlement Option

You can choose to receive the death benefit (for nominee) or maturity benefit in installments instead of lump sum. The installments can be spread out over 5, 10 or 15 years. The rate of interest to arrive at installment size shall be decided by the insurance company.

If the rate of interest is 8% p.a. and your maturity amount is Rs 10 lacs and if you installment period of 10 years, you will get ~ 12,000per month for 10 years. The installment amount will be lower if the interest rate is low.

Again, makes little sense. Remember these installments will be taxed too.

This is the first time I am seeing such an option in an LIC plan. However, it does not add much value. Only adds uncertainty about interest rate.

PersonalFinancePlan Take

Stay away from LIC Jeevan Utkarsh.

As with any other traditional life insurance plan, it comes with low life cover, poor returns and high surrender costs. In addition, the maturity proceeds are taxable in this plan.

I see no reason why you should invest in such a plan.

You will be much better off purchasing a term life insurance plan and investing the proceeds in a pure investment product.

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