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
Policy wordings on LIC website
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.
Death Benefits
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.
Survival Benefits
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.
Read: Why do Insurance Companies hide return information in Non-participating plans?
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.
18 thoughts on “Review: LIC Jeevan Umang (Plan 845)”
Whether FAB taken into consideration?
yes
Great analysis. Keep the good work.
Thanks Amit!!!
Hi Deepesh,
IHave been going through Jeevan Umang plan (since I am in look out for pension plan & critical illness plan only). Most of them tell the returns from Jeevan Umang is bad. In your opinion, which is the best GUARANTEED pension plan programme available in India?
Appreciate your feedback.
Regards,
Vinay
Hi Vinay,
Can’t comment about pension plan.
If you are looking for an annuity plan, look no further than LIC Jeevan Akshsay.
Hi All,
I am looking a plan for my son who is 6 months old. Can you guys suggest me which is good to invest which gives me good return in future?
Thanks
Rahul
Hi Rahul,
You are looking for a policy from LIC?
Dear Deepesh,
Many thanks for your detailed analysis and frank opinion (not beating around).
Impressed with your clear and simple explanations.
After reading your blogs got to know how ignorance is utilized by financial majors.
Keep up your good work 🙂
Thank you sir!!!
Dear Deepesh,
I like your analysis. I would to put my views here on your analysis. This is my perception and understanding of Life Insurance products. Firstly, Life Insurance is not a profit making instrument, it is transferring of risk of losing life early onto an insurance company by paying a premium on a regular basis.
1. Life Insurance is an arrangement against unforseen circumstances.
2. Pure term insurance is good, but inefficient if the policy holder survives the term. Life expectancy in increasing in today’s time. An average middle class man crosses 70-75 age easily. I know many of my father’s friend who are doing great health wise in their 70s.
3. A whole like policy is the right answer to a high life expectancy ratio.
4. People need certainity of returns in uncertain times.
5. Term insurance does not return your money (risk) upon survival. PPF does not insure you for unfortunate event. A whole life moneyback policy does both the things to the policy holder.
6. Every investment products have pros and cons and there is not one size fits all in the world of investment. A sound financial planner knows this fact.
7. There is no substitute to insurance and there not one insurance product that will insure you completely. Combination of various insurance and investment products make investment basket complete.
8. Regarding Jeevan Umang- As per the plan calculator the total premium comes around ₹ 945,000 for a 30 year old and for 30 years period. The Total Return from LIC for the plan is about ₹ 1,43,22,000 in 70 years. Plus, similar value of insurance risk cover for your family in case of normal and double insurance cover on accidental death. This is almost paying back 11 times return of your money in 70 years.
9. You can have only PPF account per 15 years in your name and maximum that you can invest is ₹150,000 in your name. NRI cannot invest in PPF.
10. If you survive past 55 years and now you would like to go for a whole life policy, then you will not be eligible to get that policy, infact most of the LIC policies after 60-65.
11. You cannot simply rely on term insurance especially, if you have gone past 60 and still feel fit and healthy and looking forward to cross 70 eaisly. But then past 60 you may end up with no insurance policy, plus losing of all the premiums paid over the years for term insurance.
12. Had you invested the term insurance premium of over 30 years into PPF/FD, you would have had eaisly tripped or quadrupled you money in those 30 years through compounding.
13. Each financial products has its place in the universe and there are people who need such policies.
14. A proper Financial Planning is need based or situation based. “One size fits all” is not the job of a sound financial planner.
15. A poor person should buy maximum insurance cover as per his paying capacity. A poor person can get good loan terms on his LIC policy. A Rich person can do very well in life even without a single insurance policy to his name. Although it’s not advisable.
16. There is a Special Surrender Value clause in this policy, where 90% of the sum assured is paid to you anytime before 100 years, whenever you wish after the Premium Paying Term is over.
Regards,
Mukesh Joshi
MBA & CFP- Insurance Advisor, Financial Planner & Wealth Manager
Nic reply sir,
Nic reply sir.
Good reply. How come you get 1.4 crores when the author claims only 87 lakhs? There cannot be so much of a difference, can there.
Are you sure your calculation is correct? I have a friend who is a very good LIC agent and I had him run thru this exact same thing in his LIC approved app for returns calculator. He tells me a minimum of 1.2 crores for this exact same premium, years etc. And I trust him and I am sure LIC is trustable as well. So why is there a gap of 40 lakhs?
And if it is indeed 1.2 crores, I am sure it is good.
And as someone had commented above, this plan allows closure, need not continue till 100 years.
If you could, can you please double check and give the correct picture to general public like me.
hi Sriram,
Final values depend on the values of bonuses assumed. One can make aggressive assumptions and end up with a higher maturity value.
You can expect salesmen or agents to make aggressive assumptions to drive sales.
Check the assumptions your agent has made. Ask him the rationale behind such assumptions. Do check out the bonuses that LIC has actually given on other plans.
If you are satisfied, go ahead and purchase.
Every investor thinks differently and has different return expectations. Personally, I will not be satisfied with low single-digit returns.
In my opinion, it is not smart to purchase a plan to surrender at a later stage. Defeats the entire purpose of planning.
hi sir, can you please let me know if i opt LIC jeevan umang policy today for 20 years and surrender it after 15 yrs then what amount i will get approx after surrender it full and final. premium will be Rs 3000 monthly. please let me know. thanks.
This 5.5% which one gets is tax free. Moreover with 15year premium paying term, returns are slightly better. Isnt that good as something which is guaranteed? and for the cases when markets fall etc.