OUR BOOKS

16 personal finance principles every investor should know how to be your own financial planner in 10 steps 11 principles to achieve financial freedom

5 major changes in life insurance policies from Jan 1, 2014 – How it affects you ?

by Manish Chauhan · 145 comments

Some major changes are going to happen in life insurance industry from Jan 1, 2014, especially in traditional policies like Endowment Plans, money-back plans and even ULIP’s. You will surely have a LIC policy or any other private sector traditional plans or might buy them in coming times. Here are 5 major changes which you should be aware about and they will come  into effect from Jan 1, 2014.

1. Service Tax introduced in LIC Policy Premium

Till now LIC was not charging the service tax of 3% from the customers and paying it to govt from the pool of money collected itself, but now the service tax will have to be charged separately from policy holders. Which means that if your LIC premium was Rs 50,000 per annum, now it will be 3.09% higher in first year, which is Rs 51,500  and after 1st year, it will be 1.545% as per moneylife article.

While customers see it as additional burden, note that its not the case exactly, Earlier – LIC was paying the service tax from the pool of money collected from investors only, which reduced the bonus amount given back to them. But now because it will not be taken out from the funds, that means the bonus declared each year will go up by that much margin and will come back to investors only. Note that Pvt companies were charging the service tax already, so nothing changes on their side. Only LIC was not charging it separately, which they will have to do from Jan 1, 2014 deadline.

2. Increase in Surrender Value

One of the major changes which has happened, is the change in surrender value for policy holders. The rules of surrender value depends on the premium paying term of the policy. If the premium paying term for policy is less than 10 yrs. Then the policy will acquire the surrender value after paying premium for 2 yrs (earliar it was 3 yrs), however if the premium paying tenure is more than 10 yrs , then the surrender value will be acquired only after paying 3 yrs premium.

In both the cases, the minimum surrender value would be 30% of the premiums paid without excluding the first year premium. Note that earlier, if you used to surrender after paying 3 premiums, you got 30% of premiums paid MINUS first year premium, but now as per new rules, the first year premium will not be deducted. Learn everything about LIC policies working before Oct 1

Another good change is that, from 4th-7th year, the minimum surrender value would be 50% of the premiums paid, and has to reach 90% of premiums paid in last 2 yrs of policy paying tenure.

3. Possible Decrease in Premium on LIC Policies

There is a great possibility that the premiums on LIC policies will come down by some margin, because the mortality rates will now be revised by LIC in calculating the premiums.

Mortality rates are the rates at which the insurance company deducts the fees for insuring you based on your age. LIC had been using old mortality rates till now, but now they will have to use new mortality rates . Just to give you an idea on reduction of premium, when I check the mortality rate for a 40 yrs old person in old table, its 0.001803 . But in new rates its 0.002053 . Which is approx 10% better. Lets not go into detailed calculation at the moment, but your risk premium part should go down by 10% (not the full premium, because only some part of whole premium in traditional policies are risk premium and rest is investment part) .

4. Higher Death Benefit

If the policy holder is above 45 yrs of age, then the Sum Assured has to be more than 10 times the annual premium, and for those who are less than 45 yrs old, it can be minimum 7 times the premiums. Note that for claiming the tax exemptions, your sum assured has to be 10 times the base yearly premium. So when you buy the policy in-case, you need to keep it in mind. BasuNivesh has done a great point by point notes on each aspect of regulation, in-case you want to go into details.

5. Agents’ incentives have now been linked to the premium paying term

Now agents commissions is linked to the premium paying tenure. Earlier a lot of agents used to sell the policies which had higher maturity tenure, but limited premium paying tenure (like 30 yrs policy with 10 yrs premium payment) . Here is the new commission structure taken from Moneylife article 

In case of regular premium insurance policies, a policy with a premium paying term (PPT) of five years will not pay more than 15% in the first year. Products with PPT of 12 years or more will have first year commissions up to 35% in case the company has completed 10 years of existence and 40% for the company in business for less than 10 years.

The funny aspect is that a lot of LIC agents tried to mislead many new investors by projecting date Jan 1, as the deadline when a lot of LIC products will stop giving good features using the official notification. LiveMint has even captured it in this image.

misleading ads by LIC agents

What should you do ?

The insurers have to refile all their products to IRDA and already lots of products have been approved and many are still waiting for approvals. So if you have a insurance policy, then you will get the communication from your insurer about any changes if any. Right now, for sure the traditional plans have got better, compared to their past avatars.

If you are adamant on buying endowment plan, better wait for some time and let things get more clear. Let me know about your thoughts on this change ?



Subscribe via RSS or Email:
What do you want to read about
Mutual Funds Life Insurance BankingHealth Insurance Credit Report and ScoreMost Commented ArticleReal Life Experiences Share MarketLoans Real Estate Income TaxCredit Cards For Begineer Investors Succession Laws EPF ULIP Product ReviewsBest of Jagoinvestor Other Products & Concepts How-TO GuidesBooks, Launches, Initiatives Investors Myths Psychology & Wisdom PPF General  
Buy Jagoinvestor Books in Ebook Format

{ 145 comments… read them below or add one }

1 dinesh jain September 30, 2013 at 11:08 am

Hi Manish,

In your first point you have mentioned service tax as 3% but service tax in actual is 12.3%, am i missing something here ?

Reply

2 Sumit Aggarwal October 3, 2013 at 4:45 pm

Hi Dinesh,

I am Sumit. Yes Service tax is 12.36 % but in the case of LIC it will be 3.09%. 3 % is Service tax and .09 is Education cess. but please again confirm in lIC office. i am not sure.

Reply

3 dinesh jain October 7, 2013 at 9:30 am

Ok, thank you

Reply

4 SURESH December 10, 2013 at 7:47 pm

Hi Dinesh,
My understanding is that service tax is different for savings-cum-protection plans and pure protection plans.
Regards
Suresh

Reply

5 Manish Chauhan October 7, 2013 at 8:46 am

For insurance policies , its 3.09%

Reply

6 Sandeep Nangrani December 3, 2013 at 4:52 pm

Plz find enclosed Service tax for different plans:

Term plan plus, Rider attached to it:
ULIP plus, Rider attached to it:

1st year “12.36%”, and 2nd yr onwards “12.36%”

===================================

Traditional Endowment plus, Rider attached to them:
Immediate Annuity plans plus, Rider attached to them:

1st year “3.09%, and 2nd yr onwards “1.545%”
===================================

Regards,
Sandeep Nangrani.

Reply

7 kranti Goyal September 30, 2013 at 11:54 am

Hi Manish,

Is Service charge applicable to existing policy also?

Thanks and Regards
Kranti Goyal

Reply

8 Sumit Aggarwal October 3, 2013 at 4:47 pm

NO Friend…. It will be applicable only on new policy.

Reply

9 Manish Chauhan October 7, 2013 at 8:45 am

Yes, it will apply to existing policies also

Reply

10 Navneet Kumar September 30, 2013 at 11:57 am

Hi Manish,

A query here. What if I had a policy from before? Do the new rules apply to it or only on policies taken post 01-10-2013? Will the old policies be continued with the old rules and regulations only?

Thanks,
Navneet

Reply

11 Sandeep September 30, 2013 at 3:18 pm

It will only applicable to the new policy that you will take effective from 1st Oct.

Reply

12 Brian DSouza October 5, 2013 at 1:19 pm

I guess you may be wrong. Whenever a new bill will be generated even on an existing policy you will have to pay service tax.

Reply

13 Manish Chauhan October 7, 2013 at 8:45 am

I dont think it will apply to old policies

Reply

14 prasanna September 30, 2013 at 11:59 am

Irrespective of IRDA norms revision online term plans will be the best for ever

Reply

15 Manish Chauhan October 7, 2013 at 8:44 am

True ! , agree to that

Reply

16 SURESH December 10, 2013 at 7:50 pm

I have my own doubts whether you will see the reduction in premiums for protection plans through online channel.

Reply

17 Manish Chauhan December 12, 2013 at 1:50 pm

What is your doubt ?

Reply

18 SURESH December 12, 2013 at 2:50 pm

I mean that premiums will not reduce for polices sold through online channel.

Reply

19 Sricharan September 30, 2013 at 12:01 pm

Thanks for the article.

I have an LIC endowment plan and i have paid premium for 5 yrs and I am planning to surrender it in next month. So would the surrender value be calculated based on the new rules or old rules??

Will the new rules apply only to the new plans after 1st oct??

Reply

20 Manish Chauhan October 7, 2013 at 8:44 am

Old rules

Reply

21 Sricharan October 7, 2013 at 12:38 pm

Thanks for clarifying manish..

Reply

22 Veeresh September 30, 2013 at 1:18 pm

Manish,
Possible Decrease in Premium on LIC Policies.
This applies to only new policies or even to the already existing policies

Reply

23 Manish Chauhan October 7, 2013 at 8:43 am

At this moment , I know that its applicable to new policies

Reply

24 amol September 30, 2013 at 1:54 pm

existing and new lic policies are beneficial to customers… invest more in lic policies to get tension free claims and decent returns.. remember private companies term insurance plans claims not passed easily.. so invest in lic`s endownment plans for long term wealth creation… small term planning will not give you the returns .. any natural calamity lic given hassle free claims..

Reply

25 Manish Chauhan October 7, 2013 at 8:41 am

Thanks for your wisdom Amol .

Reply

26 Rahaman September 30, 2013 at 2:06 pm

Hi Manish,
As always thanks a lot for this article, such a crisp summarized info!!

Reply

27 Manish Chauhan October 7, 2013 at 8:41 am

Welcome !

Reply

28 Nandji Rai September 30, 2013 at 2:06 pm

Dear Manish,
You could have published it earlier. The damage has already been done. Thanks & Regards. Nandji Rai

Reply

29 Manish Chauhan October 7, 2013 at 8:41 am

Can you share your experience ?

Reply

30 Nandji Rai October 7, 2013 at 1:08 pm

All Insurance companies grabbed this opportunity with both hands & mobilized sales force to sell maximum on the ground that Insurance will become costlier due to Service tax effect. I saw the crowd at LIC office, it resembled more than closing month[March] rush.

Reply

31 Manish Chauhan October 18, 2013 at 11:31 pm

True !

Reply

32 Ramesh Sabbani September 30, 2013 at 2:31 pm

Will the surrender value of old policies as per new rules or not ?

Reply

33 Manish Chauhan October 7, 2013 at 8:40 am

Should not apply to old one’s as per my experience , but not 100% sure on this

Reply

34 Beginner September 30, 2013 at 6:27 pm

Thanks Manish.

Does these changes apply to existing policies as well or only to the policies issued from October 1st?

Reply

35 Manish Chauhan October 7, 2013 at 8:38 am

I am not sure on that, but it should not apply to existing policies as per my experience

Reply

36 Dharmendra Vadera September 30, 2013 at 10:39 pm

Dear Mr. Manish Chauhan,
You have posted a marketing pamphlet at the bottom of the article with the Caption “MISLEADING ADS PUT OUT BY AGENTS”
Hear I register my protest. Can you Justify how it is misleading ???
It was the true Information to the prospects, that “In view of the above notification, LIC’s popular plans may not be available for sale in it’s “PRESENT FORM” after 30/09/2013.
So, I would like to say, You have misled the public by publishing such pamphlet with “MISLEADING CAPTION”.
I would like to know your comments regarding this.
Thanks,
DHARMENDRA VADERA.

Reply

37 Manish Chauhan October 7, 2013 at 8:34 am

Sir , First it is an image from Livemint and not from us . We have just republished it .

Second, you have to understand the difference between “wrong” and “misleading” . The words written are correct, but are misleading . Misleading means which misleads investors and does not take them into right direction.

“Invest in stocks and it might give you 100 times return” . What is written is not WRONG, but misleading, because it does give a wrong impression. The pamphlet which you are pointing to tries to project the deadline as some kind of golden opportunity which if investors dont grab, it will hurt them. The problem is in the intention of agents and not the words.

As their duty and morality, the agents must have told the customers about the internal changes in policy rules like this article does and not use the opportunity to scare more customers so that they rush and buy more policies without understanding whats going on .

Anyways. thanks for your comment and time to ask .

Manish

Reply

38 vijay October 1, 2013 at 7:17 am

Thanks Manish for the information. Incidentally, at my wife’s office people were scampering to get their LIC policies done ‘coz a “deadline was approaching!” She called me frantically for some suggestions, luckily for me, and thanks to you, it was stale news by then and we could analyze it with a cool head.

@Dharmendra – Speaking from a investor perspective, your protest is highly misplaced. The advertisement is not inaccurate, but it does encourage a faulty assumption and so it becomes misleading.

Reply

39 Manish Chauhan October 7, 2013 at 8:25 am

Thanks for sharing your case Vijay :)

Reply

40 srinivas M, LIC OF INDIA October 1, 2013 at 11:23 am

Dear Manish,

Good information regarding this new norms with IRDA. But please dont tell miss leading from agents, please mention thare some agents. We are all doing this proffession with truth and trust with the intension of social service. So i feel proud i am an LIC Advisor. But till today i never sale any product without LIC calculations. And one more thing which you are mentioning Mutual funds and Equity related investments, how mwny brokers are giving right information and also how many stocks are giving guaranteed returns? But here LIC is guaranteed for all their investments LIKE Reversionary BONUS, FAB. We declared the bonus rate for the Jeevan anand policy 1 Rs. After the new guidence i think who are raising their voice on LIC and LIC Agents may be quit and they will come to sale the LIC plans. Because LIC always trust Brand No 1, We have some agents fully knowledgable, proffessional, So dont hurt them.

regards
Srinivas M
Bangalore.

Reply

41 Manish Chauhan October 7, 2013 at 8:24 am

Thanks for your concern Srinivas

When we say agents, it means some agents only :) . Dont take words literally

Reply

42 Vikas R April 27, 2014 at 8:32 pm

dear srinivas,

at present lic having 30 crore investors. lic already cheated all 30 crore investors like myself. now i am unable to surrender my lic policies and not want to pay premium anymore but forcefully need to pay. i am sure there are many more people like me who are doing the same. if we calculate the returns as per inflation rate then we are not getting pricipal itself. as per my experience lic policies are better for lic agents best for lic corporation but worst for lic policy holders. apart for this your online portal is also not transparent as we are unable to see vested bonus in many policies. please comment.

Reply

43 Manish Chauhan April 29, 2014 at 9:14 pm

Hi Vikas

I agree with you, but want to know why didnt you do any kind of calculation or analysis before buying ? When we buy a Fridge or TV for home, we do so much of cost analysis, then why not on a financial product !

Reply

44 KRISHNAMANI SHASTRY October 1, 2013 at 12:35 pm

liked very much your article. about LIC

Reply

45 Manish Chauhan October 7, 2013 at 8:23 am

Welcome , thanks

Reply

46 bharat shah October 1, 2013 at 4:13 pm

indeed useful information in apt time , and thoughts in favor of investors , though vested interest and unacknowledged keep noises as always!

Reply

47 Manish Chauhan October 7, 2013 at 8:22 am

Thanks

Reply

48 Ramesh Sabbani October 1, 2013 at 9:20 pm

Are these rules applicable only for new policies or old ones too ? Could anybody replay please ? Manish ??

Reply

49 Manish Chauhan October 7, 2013 at 8:16 am

Though I am not yet clear, but common sense says that it should apply to new policies

Reply

50 Varun October 3, 2013 at 5:04 am

Great article ! Very informative..

Reply

51 Manish Chauhan October 7, 2013 at 8:05 am

Thanks Varun

Reply

52 Chetan Ambi October 5, 2013 at 7:00 am

Nice article !!

Reply

53 Manish Chauhan October 7, 2013 at 7:46 am

thanks

Reply

54 Dadasaheb October 5, 2013 at 9:13 am

Very informative

Reply

55 Version October 10, 2013 at 1:43 pm

Hi Manish…I have a life insurance question. One of my relatives bought a high-value term insurance. He underwent medical tests, etc. before the policy was issued to him. After couple of years of policy issue, he was diagnosed with a critical illness. He is still living undergoing treatment. This information on critical illness has not been passed on to the insurance company. However, he is worried that after his demise his family might be denied claim as insurance company might think that he had not disclosed his medical condition in the application. There is no foul play on part of my relative at all and he indeed did not know of the medical condition at the time of applying for the policy (though in retrospect he has been living with the condition for several years, i.e., even prior to issuance of the policy). Policy has been in force for five years or so.

Question is – should he bring his medical condition to insurance company’s knowledge and establish that it was indeed diagnosed couple of years after the policy was issued. Thanks.

Reply

56 Aravind October 10, 2013 at 11:12 pm

I think the insurer should not complain. Since the critical illness was not present/diagnosed at the time of the policy writing, it should not matter that it is present now. As long as no relevant information was hidden when the insurance contract was signed, it should be fine.

Just my thoughts… Over to Manish for his expert comments :)

Reply

57 Manish Chauhan October 18, 2013 at 10:58 pm

I dont think there is much issue . He will not be denied the claim , while this might be the concern, if they had put all the paper work earlier, they should not worry !

Reply

58 Version October 21, 2013 at 4:46 am

Thanks!

Reply

59 Rajeev Rana December 23, 2013 at 12:50 am

There is not at all any problem for claim settlement. But remember that policy should not lapse at any point of time in future. Please pay all future premiums on time and don’t wait for grace period.

Reply

60 r k raman October 12, 2013 at 12:05 am

i have bima gold money back policy of LIC ,paid 37000/-per annum for twenty lackh cover

is it continue or drop and take term insurance?

Reply

61 Version October 13, 2013 at 7:01 pm

Generally speaking, one should use insurance products purely for covering the risks. Mixing insurance with investment/savings is not such a good idea as the returns on the investment/savings bundled with insurance do not match with what one could otherwise get in pure investment product – due to high charges in the insurance products. In the case of life insurance, term insurance is the only product that is meant to cover only the risk and that’s the product one must go for – even if one feels that one is not getting anything back if there is no claim during the term of the insurance.

Coming back to your questions -
1. whether to surrent or continue money back policy depends on how long you have had the policy and how much money you stand to lose if you were to surrender. Reading though the policy you should be able to find our surrender charges, and then you can take a call on whether you are willing to forego that amount. In any case, you should not surrender unless and until you have already bought a term policy. If for any reason your application for term insurance is rejected, you would be left in a lurch.
2. With the high inflation currently prevailing in Indian market, and no visible sign of situation improving anytime soon, one must go for a term insurance that is 10-20 times of one’s annual gross income. Even if you decide not to surrender moneyback policy, you could re-assess your need for any additional insurance, and go for term insurance for the additional coverage. Buying term insurance online would be the cheapest way of doing so.

These were my two cents. Please wait for Manish’ opinion before you proceed.

Regards,

Version.

Reply

62 r k raman October 13, 2013 at 11:29 pm

thank you for reply ,bima gold continue from last five year
what will be surrender value?

Reply

63 Manish Chauhan October 18, 2013 at 9:34 pm

Your Agent will be able to give you numbers on this

Reply

64 Version October 21, 2013 at 4:30 am

Reproducing below what I found on a site:

“Surrender Value : After completion three years of premium payment, policy will be eligible for Guaranteed Surrender Value. The guaranteed surrender value under New Bima Gold policy will be 30% per cent of the total premiums paid excluding first year premiums and extra premiums paid.”

You should be able to calculate surrender value based on this. You should also look at your policy document closely to confirm the surrender value calculation.

Let me expand on my answer. Decision to surrender or continue should be made based on hard numbers, and not gut feel. Here are the two calculations that would give an apple-to-apple to comparison between the two possible outcomes -

(A) Continue with the policy – in this case, you should assume that moneyback you receive from time to time is being inversted in PPF and is earning non-taxable interest @8.7% (it keep fluctuating, so you could use any number between 8 and 9 as you deem fit). You would also receive proceeds at the end of the term of the policy, which will include bonus additions as well. Say the total money would have in the kitty at the end of the term is X (proceeds from the maturity of the policy + accumulation in PPF including interests).

(B) Surrender the policy – in this case, first consider the surrender value being invested in PPF. Also get a quote from any online site for a term insurance plan that has same sum assured and will last as long as your original policy was to last (say original policy was for 20 years and you have already had the policy for five years, then look for 15-year term plan). Now deduct annual premium amount from 37,000. That’s the amount you would have in hand to invest. Again, invest that amount in PPF year-after-year. Assume same rate of interest on this PPF investment as what was assumed in scenario (A). At the end of the term, you would only have PPF accumulation (since term plan does not build any cash value). Say that amount is Y.

Comparing X and Y would decide for you which way to go. Go with whichever is giving you higher amount.

I have used PPF as the mode of investment because it offers same tax advantage and therefore keeps the tax element from calculations out. In other words, it keeps the calculations simple.

Reply

65 r k raman October 21, 2013 at 11:30 pm

thank u for your valuable suggestion. I have two daughter 1st is 2 year 2 month old 2nd 2 month old ,how to manage financial budget for her education and marriage .I am a rly.serviceman get net payment arrount 30000/-(thirty thousant) per month.i have no other liabilities.

thank you

Reply

66 Manish Chauhan October 26, 2013 at 10:42 am

What is your risk apetite ? Can you invest for next 20 yrs without worrying much about the money ?

Reply

67 Manish Chauhan October 18, 2013 at 10:05 pm

I would have taken term plan if I were at your place , now its your pick

Reply

68 Sandip Sabnis October 17, 2013 at 7:02 pm

nice info Manish…Thanks a lot…
I was about do stop some of policies like Market Plus ….
Would you suggest to wait till Jan?
Thanking you in anticipation…

Reply

69 Manish Chauhan October 18, 2013 at 8:43 pm

You can wait for it if you feel that it will become a better product after Jan , which I dont think so

Reply

70 Sandip Sabnis October 22, 2013 at 12:20 pm

Thanks Manish.
I asked because of the point above ‘Increase in the surrender value’.

Reply

71 Karthik October 17, 2013 at 11:13 pm

Thanks for the information. Please keep us updated by posting great articles.

Reply

72 Manish Chauhan October 18, 2013 at 8:39 pm

Sure !

Reply

73 giribabu2020 October 18, 2013 at 12:31 am

Hi Manish Ji…I am planning to buy Invest Gain -Platinum policy with FIB rider.This is like LIC Jeevan Mitra Triple cover.But here its quadraple cover and with Fib rider (Monthly 1% of base sum assured(12% pa) paid to nominee for minimum 10 yrs or end of policy term which ever is higher)(Endowment Plan) from Bajaj Allianz Life Insurance co.Iam planning to take 1250000 base sum assured,so in the event of death 50,00,000 is covered and monthly 1% of base sum assured is paid to nominee for minimum 10yrs or end of policy term wh ever is higher.The agent is saying that if i pay for 15 yrs term(limited payment option) it will continue(coverage) for 40 yrs term ( I am 30 Yrs),so at my 70 Yrs age i will get my sum assured plus compound bonus (bonus will be 2.5% on sum assured).I am supposed to pay Rs 58035/- for 15 yrs and at maturity i will be getting almost 35 Lakhs @ 2.5% bonus on SA.so in next 15 yrs iam paying Rs 8,70,525.00 (58035*15yrs) and i will be getting 35 Lakhs(sum assured 1250000+Compound Bonus).The rate of return will be around 5-6%.
what i am thinking is that i am paying 8.71 lakhs and getting 35 lakhs as a maturity and risk is covered till 70 age.
Suppose if i take any online term plan for same 50 lakhs i am supposed to pay around 10000 pa.so on the whole iam paying 10000*40yrs=Rs 400000.and i will be investing rest of money in PPF or FD, so i will be getting more than 50 lakhs as a maturity,but regarding FD always there is a risk of falling interest rates.but still i hope i can get 50 lakhs as a maturity.Instead of that if i took this policy i will be getting 35 laks maturity and total risk cover.so iam confused whether to take this policy alone or else Term policy plus FD.Already iam doing 15000 sip per month.i can get very good returns from sip but still i want to scatter my investments,so can i treat thsi policy as debt fund with 35 lakhs returns by paying 8.71 lakhs in 15 yrs or just online term policy and FD.
If i convert this into sip instead of FD i know i will get more than Fd but already i am doing 15000 sip.we can’t keep all eggs in one basket.becoz market risk is biggest risk.
Kindly suggest me about this policy or can i take term Plan + FD

Reply

74 Manish Chauhan October 18, 2013 at 8:39 pm

Given the complexity of the plan , I would just move to TERM PLAN + FD

Reply

75 Version October 21, 2013 at 4:39 am

Hi Giribabu…thanks for sharing detailed calculations. If everyone were to do similar number crunching before making investment decisions, it would serve the objectives of “Jago Investors”.

Reply

76 Manish Chauhan October 26, 2013 at 1:57 pm

True :)

Reply

77 manyam October 20, 2013 at 10:04 am

Nice Article again Manish..

I have a question for your point# 3 “There is a great possibility that the premiums on LIC policies will come down by some margin, because the mortality rates will now be revised by LIC in calculating the premiums”..

So that means, the premiums will also adjust for term policies as well? And so other than LIC, all other insurance companies already using new mortality rates?

Reply

78 Manish Chauhan October 26, 2013 at 2:05 pm

All other insurance companies are already using revised rates , thats the reason their premiums are already lower :)

Reply

79 manyam October 26, 2013 at 2:16 pm

Hi Manish, thanks for clarification.. so can we expect revised rates also effect on term polices of LIC as well..? or just related to endowment policies of LIC.

Reply

80 Manish Chauhan October 26, 2013 at 2:50 pm

Yes you can expect better rates for LIC term plans as well

Reply

81 manyam October 27, 2013 at 6:56 am

ok thanks :-)

Reply

82 SURESH December 10, 2013 at 7:58 pm

Premiums will not come down. Only the theoretical vase of mortality has changed.

Reply

83 Shivaraj October 21, 2013 at 2:21 pm

Hi

I am LIC Agent, I would like to know whether 10% Bonus Commission is applicable for the policies with only 5 Year PPT. (Table No. 48, PPT-5 Years)

Reply

84 Manish Chauhan October 26, 2013 at 1:51 pm

Hi Shivaraj

I am not aware of this commission .

Reply

85 Marie October 22, 2013 at 12:29 pm

Great post- more people definitely need to know about this!! I personally am in support of these changes, but I have heard from quite a few other people that they are not.

Reply

86 Manish Chauhan October 26, 2013 at 10:27 am

These changes has already happened and applicable to new policies !

Reply

87 Sudhakar October 23, 2013 at 6:36 pm

Hi Manish,

Nice article.
I have a question. I have a Jeevan Anand policy for tenure of 21 years, for which I am paying 49200 yearly.
I have already completed 6 years. After reading these financial blogs I realize that its better to stop paying and go for term plan.
I have asked LIC customer care regarding how much I get if I surrender the policy now.
They said I will receive approximately 1,62,000.
So is it better to surrender now, or Will it increase surrender value if I wait till Jan 1st?

Reply

88 Sudhakar October 24, 2013 at 5:10 pm

I got the answer form LIC customer care. These rules are for newly applied policies. Existing policies do not have any impact with these rules.

Reply

89 Manish Chauhan October 26, 2013 at 9:30 am

Great ! . Thanks for confirming !

Reply

90 Manish Chauhan October 26, 2013 at 10:05 am

I think you should surrender right now itself if you need money . Else make it paid up

Reply

91 lalit January 2, 2014 at 11:20 pm

JEEVAN anand is a polcy offering you insurance for 100 yrs of age. you pay your premium for say 15 yrs and get back your mat value with bonus and FAB after 15 yrs, Even after that you are covered till 100 yrs of age. just consider how little you pay for an insurance till 100 yrs taking into your premia paid and maturity value you get vis-vis pure term plans. Another feature is you can surrender the policy even after maturity is paid i.e. say your policy matured at 55 yrs of Age. and you got Maturity paid then and again you can surrender it at 75 yrs of age. so my take is just continue with policy.

Reply

92 rajughote October 23, 2013 at 9:19 pm

Dear Manish Sir,
Thank you very much for sharing such great information….. I want your advise/opinion on following issues,
1) In 2006 , I have taken Jeevan anand, SA=3 L, term=16 years; Jeevan sathi,SA=2 L, term=16 years ,total premium= 34 K/annum
2) In 2009, Jeevan Saral,SA=7.5 L ,accidental=15L,Term=35 years,premium=34K/annum
3) In 2012,LIC term plan,SA=50L,premium=16.5K/annum

Now after reading your articles, I feel I must come out of policies Sr No 1 and 2 and take one more term plan like sr no. 3 for 1Cr. But confused among HDFC,click to protect,SBI smart shield,kotak e preffred and LIC.

Purpose: insurance against death, partial or total permanent disability, critical illness

Can you please suggest me the best term plan. online or offline?

I have also Group Insurance of 25L by company.
regards,

Reply

93 Manish Chauhan October 26, 2013 at 10:03 am

You should take it from HDFC Click2Protect !

Reply

94 Bhavesh October 26, 2013 at 4:05 pm

Hi Manish,

Can you tell me about the LIC -Retirement & Enjoy plan, One of the LIC Agent gave me a clear quotation stating to invest 60076 per year from 24 years to 50 years, aftre 51 years LIC will provide 3.1lakhs with 5% annual growth every year with respect to inflation till 75 years….this has Personal & Accidental coverage of 26lakhs and grows to 75 lakhs till your tenure, more over the amount you receive every year from 51 years till 75 years is coming to approximately 1.2 Crore, after 75 years to 100 years your Life coverage applicable of 25 laksh and no pension….

please let me know your thought on this and have u heard of this plan
??

Reply

95 Manish Chauhan November 4, 2013 at 11:51 am

Is it given in written by LIC, or just printed by LIC agent on some colorful paper !

Reply

96 girish naik November 13, 2013 at 9:02 pm

Dear manish,
I have a policy jeevan saral, term 35 yrs premium 18375/3 months (72k + per anum ). I had taken this on july 2011,
now my question is if I pay upto 3 yrs then cose the policy how much will be returning to me. And if I close after 5 yrs full pymnt wat will be the returns. My intentiin is to get atleast the paid amt.. As I m not able to bear such huge amt and it seems like I m going to lot if I close now.. noe I m like “cant pay vant close”. Help please.. Even partoal surrender also leads loss only. Atleast let tje loss be less… Better if get the answer im values(number). Thanks in advance

Reply

97 Manish Chauhan November 14, 2013 at 2:23 pm

In any case the returns you would get is not going to be encouraging enough . The best will come only when you complete the tenure . So better close it after 5 yrs . you will have to share with me the exact amount you would get after 5 yrs for understanding the returns !

Manish

Reply

98 ritesh November 17, 2013 at 10:59 am

Dear Manish,
Very thoughtful article ut damage has already been done for me and am planning to go for surrender of all my (7) endowment policies with coverage of approx 26lac. I still have 11 yrs for the first policy to mature. Do you think its aright decision? I have already decided on having a term plan and am not paying my Premium just to get my TERM PLAN before surrendering.
I will transfer the surrender amount to PPF and add the difference of Policy Premium between old policies and Term Plan to PPF. I worked out the returns which showed how foolish I was before, but then just wondering maybe I made a mistake in the excel sheet calculation? Can you give me link to some of your return calculator where I can e sure about my calculation.
I just shared this info to make other readers motivate/understand the wisdom i gathered from your blogs (as well as from Ashal,Pattu, Subra etc) and to make right decisions.
Thanks,
ritesh

Reply

99 Sadananda Nayak November 26, 2013 at 9:26 am

Dear Manish,

As per my understanding service tax is not applicable on ULIP / Endowment policy right? It is applicable only on Term policy. Am I correct in my understanding?

Reply

100 SURESH December 10, 2013 at 7:45 pm

Service tax is applicae to both LIP and Traditional policies.

Reply

101 Manish Chauhan December 12, 2013 at 5:44 pm

Service tax should be paying on the the Insurance premium even in ULIP or endowment

Reply

102 Shashank K S December 9, 2013 at 2:51 pm

Hi Manish,
In our office cafeteria, an LIC agent is trying to sell policies putting same misleading ads as described above. Can i put a copy of your this article next to his counter??

Reply

103 Manish Chauhan December 9, 2013 at 5:24 pm

Sure
please go ahead ..

Reply

104 SURESH December 10, 2013 at 7:43 pm

Point 2: Increase in Surrender Value

Though the scale of Guaranteed Surrender Value has increased as per the new regulations, the actual surrender value is generally higher than Guaranteed Surrender Value. So, the impact of new scale proposed under new regulations to the policyholder is minimal.

Point 3. . Possible Decrease in Premium on LIC Policies

Though the new mortality table is lighter compared to old mortality table(around 10% lower mortality), there is hardly any difference in the premium. In particular, premiums will not come down . The reason for lowering of premium depends on the actual experience of the mortality. So, for example earlier if companies were using 80% of the old mortality table may use say 88% of new mortality table. So the premium will not come down by using new (lighter) mortality table.

Regards
Suresh

Reply

105 Senthil December 16, 2013 at 5:49 pm

Hi Manish,

Could you please suggest me top three endowment / money back plans for a woman aged 26 yrs.

Reply

106 Manish Chauhan December 18, 2013 at 3:53 pm

Hi Senthil

I myself dont support investments in endowment / moneyback plans, so wont be able to suggest them .

Reply

107 Rajeev Rana December 23, 2013 at 2:01 am

If you observe the death claim settlement ratio for term insurance policies from different companies, you will understand that a pure term plan is like a paper umbrella which is o.k. during sunshine but usually doesn’t work when it starts raining. A proper combination of different life insurance & financial products based on the individual’s need can provide a complete peace of mind with 360 degree protection where nothing can penetrate to disturb one’s plans…

Reply

108 Manish Chauhan December 25, 2013 at 9:44 am

Rajeev

Can you share more on this , What do you mean by your statement ! . Why wont it benefit if some one has only a pure term plan ? What problems they will face ?

Reply

109 Rajeev Rana December 25, 2013 at 11:30 am

Dear Mr. Manish,

The term insurance policy has a grace period of 15 days only for the premium payment. When something goes wrong with the person’s financial/physical condition, he normally fails/forgets or ignore to pay the premium and the policy lapses accordingly. If the person dies during that period, no claim is payable. If you check with different insurance companies you will find that the reason for non payment of the death claim was that most of the policies were lapsed when the claim was reported. Whereas on the other hand, this is not the case with endowment type of insurance policies. Also it can provide some sort of financial support by way of loan on the policy.
Endowment type policies combined with PPF kind of other instruments can provide the best financial solution.
As you understand that there is no substitute to LIFE INSURANCE, hence a complete financial planning needs to proportionately combine various saving instruments with Life Insurance depending on individual’s needs and future plans. The basic formula for FINANCIAL SUCCESS is that, there must always be CONTINUATION OF INCOME in the family, which can be assured by insuring the person’s earning potential during his earning span. This will help the family if anything untoward (Death/Disability) happens to the bread winner. Also if everything goes fine, it will help him to retire with laughter lines and not the worry lines for his golden years making him self dependent with the help of pension from life insurance policy’s maturity proceeds.

I hope it will help you understand the logic behind my statement.

With Best Wishes Always,

Rajeev Rana
B.E. (Mech.)
M: +91 9321296940

Reply

110 Manish Chauhan December 25, 2013 at 11:57 am

Yes, I agree with you , but even with Endowment policies, they will not get INSURANCE part , if policy is lapsed, they only get the Savings part (incase the policy has run for more than 3 yrs) , So in that case from pure life insurance purpose , endowment is no better than other form of policies . I hope you will agree on that ?

Manish

Reply

111 Rajeev Rana December 25, 2013 at 1:56 pm

Relaxations in the matter death claim under policies where premiums are paid for full 2 years: (L.I.C’s Endowment type policies) :

I. Death of life assured were to occur after expiry of grace period:-
a) But within 3 months from F.U.P.: Full S.A.+Bonus- Unpaid Premium.
b) But within 3 to 6 months: Half the Sum Assured & No Bonus.
c) But within 6 to 12 months: Proportionate Paid up value & No Bonus.

II. Under (b) & (c) above, no deduction towards any unpaid premium due before the death or after, within the policy year of death.

III. If the premiums are paid for at least 3 full years : Concession will be given if the death takes place in the 4th year, as in (a) above. i.e. if the premium is not paid for the full year and the death takes place during that period, the full Sum Assured with Bonus declared with Bonus for unpaid year is payable with recovery of unpaid premium.

IV. The above concessions are not available for : Mortgage Redemption plan, Pure Term & Convertible term plan, Bima Sandesh, Bima Kiran, Jeevan Sarita, Jeevan Shree & New Jeevan Dhara.

V. Under CDA plans & Children anticipated assurance plan if death takes place after the date of FUP but within 12 months : All the premiums paid there under will be refunded on ex-gratia basis.

(Above concessions are available on basic sum assured only).

Most of the insurance people (more than 95%) are not aware of the above facts, hence they simply misguide the public in many such cases..

I hope it will clear your doubts.

Rajeev Rana
+91 9321296940

Reply

112 Manish Chauhan December 28, 2013 at 4:41 pm

Thanks for explaining Rajeev .

Reply

113 Anandita December 28, 2013 at 4:00 pm

I have a question. Is, Svc Tax applicable for existing policies also from 2014?

Reply

114 Manish Chauhan December 28, 2013 at 4:11 pm

Yes, all policies

Reply

115 Naveen December 30, 2013 at 11:10 am

Hi Manish, I am 41 years old, planning take Jeevan Saral policy, before 31st Dec’2013 Old policy is best or after 1st Jan (New policy is best…in all respects…please give in details what will be plus and minus..Thanks-Naveen)

Reply

116 Manish Chauhan January 4, 2014 at 12:06 pm

Naveen

Please open a thread on our forum to discuss this – http://www.jagoinvestor.com/forum

Reply

117 Jayanta December 31, 2013 at 1:08 pm

Dear Manish

I have purchased Jeevan Astha for 5 year tenure now I think this January it will be matured, can you tell me how much I will get ( I have invested Rs.25000/-) and what is the Tax treatment ( taxable or non taxable) of the amount which I will get.

Thanks
Jayanta
Bangalore

Reply

118 Manish Chauhan January 4, 2014 at 11:44 am

I believe it was “Double your money” scheme, so you will get that only ! and as the money is from insurance product, it will not be taxable !

Reply

119 amit kumar jain January 2, 2014 at 7:51 pm

hi manish,

Can you pls answer 1 thing
Is it a good idea putting money in LIC’S endowment polices for a diversification along with higher risk cover, that which is featured in Jeevan Mitra triple cover or you believe that having a cheapest term cover with any company along with investments in mutual funds or reinvesting in fds is a better option for sure.

Amit kumar Jain
Guwahati

Reply

120 Manish Chauhan January 4, 2014 at 11:20 am

Amit

If you are ok with 5-6% return in long term with 100% surity , then you can surely go with any Endowment plan (LIC or pvt) . Its a choice you make, one cant suggest anything !

Manish

Reply

121 dr salimuddin January 6, 2014 at 11:28 am

good good.
Great ! . Thanks for confirming !
happy new year 2014

Reply

122 dr salimuddin January 6, 2014 at 11:33 am

Great article ! Very informative..
happy new year

Reply

123 pramod khandelwal January 9, 2014 at 7:29 pm

I have a question. Is, Svc Tax applicable for existing policies also from 2014?

Reply

124 Lalatendu Patra January 17, 2014 at 4:27 am

Hi
Regarding the IRDA guideline changes from January 2014 , Could you please clarify me the below queries.
1. are these guidelines will be applicable to existing policies or not ?
2. As the premiums are going down because of increase in mortality rate , where do i find the new premium details ? are the sum assured going to affect because of lower premium amount. Are all the policies taken before 2014 will have lower premium amount ?

Reply

125 Manish Chauhan January 20, 2014 at 7:16 pm

1. No

2. Yes

Reply

126 NADEEM SHAIKH January 20, 2014 at 5:29 pm

Dear Manish

I have taken LIC Retirement Plan [Plan No 14] dt. 28.03.2011 details as given below :
Date :28.03.2011
My Age : 27 at that time
Premium : 36,530/-p.a. [Annually]
Term : 30 Year
Retirement benefit :
a.Retirement :Started from 58 of Age of Retirement to 75 Years i.e. from 2042 to 2059.
b.Benefit =Accidental benefit + Vested bonus + Death Benefit

My Question :
1] I have paid 3 premium dt.28.03.2013. Now i went to agent and informed him to surrender some policy and i have paid 3 year premium. As per Him it is not possible now bcs even though i have paid 3 years premium, period of 3 year has not been completed till now and it is possible only after 28.03.2014.

2] Whether i will get only 3 years premium Less 1 year premium = balance* 30% surrender value. whether new provision of increase of surrender value not applicable to me.Further Bonus accrued for 3 years will not be received to me.

3]Agent submitted my application to LIC office to understand Surrender Value but they said that Surrender value will be understand only after completion of 3 years. So they are not giving me any Surrender value details.

What will be the best solution in My case. I need Money but not very Less or whether to paid 4 year Premium and get it Surrender.Kindly Guide Me.

Reply

127 Manish Chauhan January 20, 2014 at 6:10 pm

1. He is correct on this, The surrender value will only be acquired only after 3 yrs is complete. It might happen that their software tells the answer

2. Old provisions will apply to your policy .

3. Yes, it might happen that its possible only after 3 yrs is completed . But do not expect a lot. You should not get more than 30% of your premiums paid (excluding 1st year premium) . So it will not be very high !

Manish

Reply

128 NADEEM January 20, 2014 at 6:30 pm

THANKS

WHETHER I WILL GET VESTED BONUS OF 3 YEARS PREMIUM PAID AND HOW MUCH.

Reply

129 Raja M January 24, 2014 at 4:29 pm

I would like to know about life insurance(amulya_jeevan)
http://www.licindia.in/amulya_jeevan-I_benefits.htm

In what are the cases the policy will be denied or void

Reply

130 Manish Chauhan January 30, 2014 at 6:50 pm

It will not be denied at any cost, you will be able to buy it for sure !

Reply

131 akgc2 January 30, 2014 at 10:15 am

Hi
I had taken LIC Money Back policy (Plan Table 75) back in Dec-2003 for 20 Years term. I am paying Rs 31364/- as annual premium for Sum Assured of Rs. 5 Lakh.

Till Dec-2013 I have paid 10 premiums and 10 are still pending. In my online LIC account it shows the vested bonus as 1,81,500/- I have already received 2 cash back of Rs 1 Lakh each at the end of 5 (Dec-2008) and 10 (Dec-2013) years respectively.

Could you please let me know what would be the maturity value for this policy in Year 2023 and also the surrender value (If I surrender this policy Today) based on the premium or vested bonus I have mentioned above. Policy has completed 10 years.

Reply

132 Manish Chauhan January 30, 2014 at 4:30 pm

If you check http://www.licindia.in/periodic_moneyback_003_features.htm ,. its clearly written that you get 20% moneyback 3 times and then 40% of sum assured at the maturity period . So 40% of 5 lacs + accrued bonus . So it would be 2 lacs + bonus which is accumulated in account.

Reply

133 akgc2 January 30, 2014 at 5:32 pm

Hi Manish
I was not looking for this. This is known to me and all the policy holder. The grey area with all the policies is the Bonus and Final Addition Bonus (and Loyalty Addition for some policies).

These are never known to common man however an LIC Adviser or expert in the company could help to know these numbers based on his experience and the numbers from the past matured policies.

That is what I am looking for.

I checked with the LIC people and came to know the surrender value for my policy is 1,10,770 as on Today.

Reply

134 Manish Chauhan January 30, 2014 at 5:49 pm

In your last comment , you also asked for the maturity amount, thats why I replied you that last thing I said, but as your said the real thing to know is the bonus part at the end, but yea , that is not known today, you can only estimate it.

Manish

Reply

135 Bikram February 6, 2014 at 1:08 pm

Hi ,Manish!!..
I would like to understand the aspect of mortality rates calculations and its effects in reduction of premium under the new regulations. can you kindly explain that for us??..

Reply

136 Manish Chauhan February 14, 2014 at 6:06 pm

What exactly you want to know on that, Mortality rates are the chart of probability on death in different age group, lower the probability , lower the premiums . from that only premiums are decided .

Reply

137 Samiksha Salvi February 6, 2014 at 1:32 pm

Hi Manish,

I am planning to buy LIC policy for my 1 year old daughter.

Could please suggest any good plans?

I am looking for long term plans.

Thanks in advance!!

Regards,
Samiksha

Reply

138 Manish Chauhan February 14, 2014 at 6:05 pm

We do not suggest any LIC plan from investment point of view. Are you not comfortable with mutual funds ?

Reply

139 Chetan February 6, 2014 at 8:20 pm

Hi Manish,

First of all, a good articles and informative.

I have a 3 policies taken 2 years back and is up premium payment date by feb 20th.
While taking the policies, I did not add critical illness to them. I wanted to add them but my agent says that as per insurance changes from Jan 1st 2014, this rider has been scrapped. And can not be added.

Please let me know if this is true? Why agents dont give information on critical illness rider?

Thanks,
Chetan

Reply

140 Manish Chauhan February 14, 2014 at 5:55 pm

Yes, its true

Reply

141 Sanjay Devrani February 26, 2014 at 2:16 pm

Hi Manish,
I am planning to buy LIC policy for me , joint plan insurance & 4 years daughter
Please suggest any good plans?
I am looking for short term plans. good ritruns & insurance
Thanks
Regards,
Sanjay Devrani

Reply

142 Manish Chauhan March 2, 2014 at 7:13 pm

For what purpose are you buying these plans ?

Reply

143 Sanjay Devrani March 3, 2014 at 12:39 pm

Hi manish

I am required for investment plan & not for market future

Regards

Sanjay Devrani

Reply

144 pradipta February 27, 2014 at 11:52 pm

I have taken ULIP plan(smart steps plus child plan) from MAX Life in 2008 july with annualy 25000 premium. for a sum assured 450000 for 18 year. But now, my fund value is around 132000/-. But till now I paid 144000/-. I feel it is not performing well. Do I need to continue investing in this or do i need to surrender this ULIP policy? As I know ULIP pays only after 5 year of investment.. like 10/15 year in long term…..

Please comments….

Reply

145 Manish Chauhan March 2, 2014 at 6:46 pm

This is same for various ULIP’s . I think if you do not understand products, then better get out of this ULIP

Reply

Leave a Comment