LIC Jeevan Umang is a non-linked participating whole life traditional life insurance plan. The meaning of whole life is almost literal. The plan matures when you turn 100.
Let’s look at at some salient features of the plan and how LIC Jeevan Umang makes for an insurance and investment product.
Salient Features of LIC Jeevan Umang (Table no. 845)
Policy Maturity: At the age of 100 years (I am not kidding)
Policy Term: 100 years – Your Entry Age (if you entry age is 35, you will get cover for the next 65 years)
Premium Payment Term: 15/20/25/30 years (no. of years you need to pay the premium)
Minimum Age at entry: 90 days (Why would a kid need a 100 year policy?)
Maximum Entry Age
55 years for 15 year premium payment term
50 years for 20 year premium payment term
45 years for 25 year premium payment term
40 years for 30 year premium payment term
Minimum Sum Assured: Rs 2 lacs
Maximum Sum Assured: No cap
LIC Jeevan Umang: Policy Benefits
I have skipped a few finer points to keep the post simple. You are advised to refer to policy wordings for such finer details.
If the demise of the policyholder happens before the commencement of risk, your nominee will be refunded the premiums paid (excluding taxes)
If the demise happens after commencement of risk, the nominee will get:
Base Sum Assured + Simple Reversionary Bonus (announced every year) + Final Additional Bonus (applicable in the year of death)
When does the risk commence?
I have never been to understand the logic behind such a clause. Anyways, as per the policy wordings, if the entry age is less than 8 years, the cover will commence after 2 years.
If the entry age is 8 years or above, the risk cover commences immediately.
You will get 8% of Base Sum Assured every year after completion of the premium payment term till the age of 100 (or death whichever is earlier)
On maturity (at the age of 100), you will get:
Base Sum Assured + Simple Reversionary Bonus (announced every year) + Final Additional Bonus (applicable in the year of maturity)
Something different about Simple Reversionary Bonus
About Reversionary Bonuses, do not even though these bonuses are announced every year, you get these bonuses only at the time of maturity.
So, if the bonus of Rs 50,000 is announced for your policy but you get the amount after 40 years, the value of this Rs 50,000 is greatly diminished due to inflation. Clearly, Insurance companies exploit the time value of money.
The policy differentiates between the Simple Reversionary Bonus during the premium payment term and the years after the premium payment term is over.
The policy wordings clearly mention (after the premium payment term is over), “the terms for participation of profits after the premium paying term may be in a different form and on a differential scale depending on the Corporation’s experience under this plan at that time”.
In fact, LIC has not referred to bonuses (or profit sharing after premium payment term) as Simple Reversionary Bonus.
LIC Jeevan Umang is a new plan. Difficult to comment how these bonuses will shape up.
LIC Jeevan Umang: How are the returns?
LIC Jeevan Umang is a participating plan. Therefore, the returns depend on the bonuses announced by the company for this plan.
And these bonuses will depend on the performance of the insurance company. The performance of the company shall, in turn, depend on the claims experience, persistency ratios and investment performance. Since the investment will be primarily debt, interest rates in the economy will also pay a role.
Too much for me to make assumptions about.
Therefore, unlike non-participating plan where the returns are known upfront, it is difficult to make an accurate assessment of returns.
However, we shall still give it a try.
At the outset, I expect (know) that the returns to be quite low. That is the case with all the traditional life insurance plans.
Suppose a 30 year old man purchases LIC Jeevan Umang for a life cover of Rs 10 lacs.
The annual premium for the plan will be Rs 32,030 (before taxes).
I will not consider the impact of taxes. That will, to an extent, nullify the premium rebates (that I am not considering either)
I have considered/assumed fairly generous values for Simple Reversionary Bonuses and Final Additional Bonus. I have considered bonuses for other similar plans from LIC and considered data from other online sources.
A return in the range of 5-5.5% p.a. for such a long term does not excite me. In any case, life cover is nothing really to write about.
You could have done much better with a combination of term life insurance plan and Public Provident Fund(PPF). I leave it to you to work out the numbers.
What puts me off?
- LIC Jeevan Umang is a traditional plan. Therefore, all the problems that plague a traditional life insurance plan are present in LIC Jeevan Umang too.
- Low life cover and poor returns.
- You do not need life cover till the age of 100. This unnecessarily adds to the cost.
- Inheritance is anyways not taxed in India. So, bypassing the issue of taxation at the time of inheritance is not really an issue in India.
- You are unlikely to enjoy real benefit of the plan. You need to be alive till the age of 100 to get maturity benefit. How many of us expect to live till the age of 100?
In my opinion, you can avoid LIC Jeevan Umang.
Perhaps, there is a use in very specific cases but I can’t think of any.
Do note this is not a commentary on LIC. The problem is with the plan structure. Many private life insurance companies come out with such plans and those plans should be avoided too.