Before reading review of LIC Jeevan Vaibhav – check what’s the current position of insurance industry & specifically LIC. The insurance industry is at cross roads. The wide spread misselling in Insurance Products, even by reputed Banks has marred the image of the industry. The Insurance regulator has started cleaning operation since the year 2010 starting with new ULIP regulations. The Government of India has also joined the chorus and made protection cover 10 times the annual premium for eligibility on Income Tax exemptions. It is widely believed that the customers interest is the last thing by the Insurance Companies. Even now the regulator has come to the level of making “Needs analysis” mandatory as a pre selling exercise.
In this back ground, the Life Insurers should be careful about their image. They should bring transparency in their functioning by more disclosures and display seriousness while dealing on policy holders interest.
LIC is the largest Life Insurer who commands 77% of market share as of April 2012. LIC was in the news recently for some wrong reasons. LIC is a sovereign pride and trusted universally across the whole country in rural, semi urban, urban and metro areas. We expect LIC to reciprocate the trust and goodwill in designing appropriate products suitable for the consumers.
LIC Jeevan Vaibhav Review
Let us look at Jeevan Vaibhav launched recently and analyse if it has taken consumers interest in product design:
Insurance or Mutual Fund ?
LIC Jeevan Vaibhav is a close-ended single premium endowment assurance plan which offers guaranteed benefits on death and maturity along with loyalty Addition, if any, payable in the last policy year. The plan is opened for sale for a maximum period of 120 days. The loyalty addition can be decided only at the end of 10 years. The protection cover is a little more than twice the premium paid.The question now is whether LIC aims to provide protection to the under-insured masses or mobilize funds by promising doubling money in 10 years?
Transparency in Surrender value?
The Policy term is for 10 years, but the policy can be surrendered after 1 year. The minimum Guaranteed Surrender Value allowable is equal to 90% of the Single premium paid. LIC may however pay Special Surrender value as applicable on the date of surrender provided the same is higher than the guaranteed Surrender Value. The Special Surrender Value will be the discounted value of the Sum Assured as on date of surrender. It is widely known that in traditional products, the insurers pay 30% of the premium paid excluding the first year premium. Will the surrenders be discouraged with high discount rates to the premium?
Lack of clarity in Tax treatment!
In the recent Finance bill, it has been proposed that the Sum Assured should be atleast 10 times the annual premium so as to be eligible for exemption under Section 80C income tax and exemption of maturity benefit under Section 10(10D). But there is no clarity on single premium like LIC Jeevan Vaibhav. So it is presumed that the maturity benefit will be subjected to Income Tax . However 10% of the Sum assured can be taken for 80 C deduction in terms of the extant Income Tax regulation. The tax issues should have been clarified so that the prospects are not taken for a ride.
Inappropriateness of Benefit illustration!
The investment regulation of IRDA has prescribed the exposure norms of traditional products by specifying that the investments will be made mostly in Govt and AA and above rated securities. Since this is a single premium product, the investment will be made initially for which yields can be known at the beginning. So what is the appropriateness of 6% & 10% benefit illustration?
Higher service tax will lead to Lower returns!
It is also known that the prescribed asset allocation cannot generate more than the yields of Fixed Income Securities. But the recent hike in service tax from 1.55% to 3.09% for the traditional products in the Finance Bill should have been mentioned since this will increase the premium and suppress the return. Taking the service tax , the expected returns are furnished in the table.
Who should buy LIC Jeevan Vaibhav?
- The consumers who have already adequate protection cover.
- The consumers whose risk appetite is low and who do not want to take risk in investment.
- The consumers who do not come under Income Tax or come under lower tax slab.
Alternative Products
- Bank’s Fixed deposit (100% tax rebate under 80C for FDs of 5 years and more)
- Mutual Funds(Debt/MIP ; Short term gain at Tax slab rate and long term gain at 10% without indexation /20% with indexation)
- PPF(EEE category in Tax treatment but maturity after 15 years)
Review of LIC Jeevan Vaibhav is done by Prakash Praharaj, CERTIFIED FINANCIAL PLANNERCM – the views expressed herein are the author’s personal views.
Prakash also worked as Chief Risk Officer in one of the insurance companies so feel free to ask any questions related to insurance.
The last para says who should but Jeevan Vaibhav?
“The consumers who have already adequate protection cover.”
If someone already has adequate cover then what is the need for this product?
The alternatives suggested by him are better off anytime!
Suppose I would purchase this Jeeven Vaibhav for a period of 10 years, my age is 42 years, for one time investment of Rs. 1.0 Lacs. please guide me :
1. How much sum insured ?
2. After 10 Year how much amount I will receive?
3. In future may I add any amout for more benefit?
Regards,
Chander
Your Sum Insured as explained above will be 2 lakhs, after 10 years you will receive 2 lakhs plus loyalty additions and you cannot add anything in the future since it is a close ended plan
Hi Chander,
The response in seriatum:
1. Around Rs 2 lakhs
2.Rs 2 lakhs+ Royalty if any.In benefit illustration,they have shown royalty of R25,000/-
3. This is a close ended product.U can not add any benefit.
Prakashji It is Loyalty Addition and not Royalty
Hi Deepak,
Thanks for correcting the typographical mistake!
Hi Deepak!
You are right!
Sir,
Kindly explain about the accident policies as against the term policies. Name few accident policies available in the market.
Life insurance covers the risk of death; where as personal accident insurance covers the risk associated with accidents. In case of Term Insurance,the Life assured gets the Sum Assured in case of death.It only covers the mortality/Death risk.If the life assured is seriously injured in an accident and disabled either temporarily or permanently, he/she will not able to work and earn. To minimise the financial hardship of the life assured and his/her family members, the personal accident insurance provides the financial support.
Personal accident insurance policies are the domain of health insurance companies like Apollo munich,Star and Max Bupa. Even Life Insurance Companies also provide Accident Insurance as riders.
Consider bank fd. advantage.
a.. 5 years lock in period as against 10 years.
b. 10000 interest income is tax free.
c. SBI FD @ 9.25% is compounded quaterly so yields are at 9.6%
d. PPF far better tax efficient
The product will be mis-sold by many by misleading
1. tax free at the end of 10 years section 10(d)
2. Loyalty addition is guaranteed
3. 80c benefit available @100% on 1st year.
Bank FD interest is not tax free, it is savings bank interest which is tax free!
Yes Pankaj.You are right.That is why there should be disclosures so that the consumers understand the product well before buying.
Thanks for the review. I have LIC Jeevan Shree (Plan 112, paying term 16 yrs) , LIC Jeevan aasha II(plan 131, paying term 25 yrs) and LIC Jeevan Saral ( plan 165,paying term 32 yrs) . All these policies have been started in 2001 & 2003. Which of these policies do i surrender given a choice??
Hi Sameer!The information provided is inadequate to respond.However there are few things before considering surrender of the policies;
1.Please ascetain how much cover is needed for you.A Financial Planner can help you in this.
2. Before cancelling existing policies,pl take adequate Term insurance.You can buy it online which will be cheaper.
3. Traditional Policies gives return between 5-7%.In case you want higher return,please do not mix up insurance with investment.The type of investment instrument will depend on your financial goal and risk appetite.
Thanks Sir or ur reply. For completing the information, I already have a term insurance cover, which i will upgrade a few yrs later….i also invest in Diversified Equity MF’s….i do invest in PPF , FD’s for my debt component . The premiums for all the above 3 policies on an average 22,000 per policy. I get a feeling tht its probably an insurance heavy portfolio. i do recognise the importance of an endowment plan in one’s portfolio, bt then shd i hold all 3?? I m feeling the load of the premium. Kindly help. thanks !!!
Hi Sameer,
You need to distinguish between insurance and investment.Then u have to detemine the required insurance cover for you.This is a detailed exercise.Once you have adequate cover,you can consider cancelling the endowment policies.On investment ,you need to get your finnacial goals in order.Then determine the goal years and the amounts required.Your risk appetite influences investment decisions.For longer goals you can take diversified equity of MF route.For short term goals you can go through Debt route.PPF is good for long term goals.
FULLY AGREE. Would just like to clarify to pankaj that Rs. 10000 interest income is tax free for saving a/c, hence not applicable in your reply as we are considering FDR.
Dear Sir
can you provide the information regarding Bonus Rates declared by life insurance companies.
hi shelly it’s vary from insurer to insurer some policies r with profit policies and (i.e)u can get the bonuses like revisionary bonus, terminal bonus if any and some policies r without profit policy (i.e) there is no such bonus so before taking any policy read all the instructions.
Hi Hemant,
We appreciate the efforts that you have been putting in to advice people on their investment front.
Will be glad if you can suggest me the best option for the below.
I would like to invest 1.5lakhs per month for the next six months into a good fund/others to earn a good return than the bank fds after 2+ years.
I dont mind if there is a high risk involved but can you please suggest a good fund/other for this.
Based on the inputs on the site, i zeroed down on the below two funds, can you please suggest the best option or any other for the above requirement.
SBI Magnum Emerging Busi (G) Fund
Reliance Equity Oppor – RP (G) Fund
Reliance Banking Fund (G) Fund.
Thanks & Regards,
Nagaraju V
Hi Nagaraju,
The comparative analysis of the three funds selected by you based on Value research findings are as follows:
SL Scheme AUM 1 yr return 3 yrs return 5 yrs return Exp ratio Sharpe ratio Alpha
1 SBI Magnum Emerging Busi (G) Fund 588.5 10.46% 27.43% 6.94% 2.21 0.97 15.45
2 Reliance Equity Oppor – RP (G) Fund 3473.12 2.28% 26.36% 9.83% 1.84 0.84 13.97
3 Reliance Banking Fund (G) Fund. 1671.49 -4.19% 21.89% 16.14% 1.93 0.53 3.77
So the first one having alpha of 15.45 and sharp ratio of 0.97 is best amongst the three.Higher sharp ratio indicates risk adjusted return.
Hi Hemant,
Insurance companies like LIC need to understand the fact that if they want to survive in the market for the upcoming years they need to start offering better than what they have been doing so far. What I also feel is even if govt. has made some changes in the insurance rules to minimize misselling, they should also make a criteria for insurance agents and conduct some kind of exam and get the best of the lot who are honest and will prove genuine details about their insurance company and policies.
I want to buy a TERM INSURANCE Plan.
Kindly suggest me the best Term Insurance Plans available covering maximum riders like accidental death, critical illness, waiver of premium , accidental disability rider etc.
The Best plan with a highest Claim settlement ratio.
Hi Chetan,
Read this
https://www.retirewise.in/2011/03/best-term-insurance-plan-india.html
Hello Prakash,
nice to see such informative replies from you.
I’m living in USA and confused between Jeevan Vaibhav and Jeevan Pramukh Policy. As of today I’m 31, please advise suitable policy for me. I prefer single or maximum 3 annul premiums and I can invest up to 5Lac INR for next three years.
appreciate your help.
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