Jagoinvestor

August 30, 2009

Review of Jeevan Tarang Policy from LIC

We will discuss about LIC’s Jeevan Tarang Policy today, One of the readers asked me my review about Jeevan Tarang in “Ask a Question” Section.

I thought it would be a good idea to discuss it with every one here. So lets see Whats the policy and lets evaluate and answer the question “Is Jeevan Tarang worth consideration or Not”? Also see How can we beat this Policy by huge margin.

LIC Jeevan Tarang

Jeevan Tarang Policy Highlights

  • Jeevan Tarang is a Whole Life Plan from LIC, Whole life plan means that you are insured for whole life (max age 100) The plan offers three Accumulation periods – 10, 15 and 20 years. A proposer may choose any of them. This is the Tenure by when your Policy Matures.
  • Whenever you die, you will ge the Sum assured and then the Policy Expires. This policy will expire if you are at age 100.
  • If you Die before the Maturity, you will get the Sum Assured + All the Bonus Accumulated till date.
  • The yearly Premimum will depends on two things, your Tenure and your Age. It can range from 11% (Policy for 10 yrs), 7-8% (Policy for 15 yrs) or 5-5.5% (policy for 20 yrs).
    For exact numbers see here. The percentages are with respect to your Sum Assured, 5.5% premium means 5.5% of your Sum assured. so Rs 10,00,000 of Sum assured means 55,000 of Premium each Year .
  • Incase you surviuve till your Policy Tenure, then at the end of your Tenure, you will get Bonus accumulated (not the Sum assured) and an annuity of exact 5.5% each year after the Policy Matures. One will get 5.5% of the Sum Assured each year till his death or upto age 100 whichever is earliar.
  • If you can not pay the Premiums and want to stop the policy (only after 3 yrs), you have two choices, either make it a Paidup policy or take back the Surrender Value. This is explained in detail later, so move on.
  • These are the main basic and approximate points of the Policy, for exact detials see the policy page at LIC website.

Let us now see an example with different Scenario. This will help you understand it better. Read Important of Life Insurance

Now let take Scenario’s

Ajay’s age is 30 and he takes Jeevan Tarang Policy for a tenure for 15 yrs with Sum Assured of Rs.10,00,000 (10 Lacs). His Yearly Premiums will be 71.40 for every 1000 sum assured, which is 7.14%. Which comes to 71,400 per year.

If Ajay dies before 15 yrs

In this case he will get Sum Assured + Bonus Accumulated till date. The Bonus amount is not fixed and we can not tell how much it will be now , But on LIC webpage its mentioned in range of Rs 20-88 .

Lets take a good figure of Rs 30 . In that case Per year it would be 30,000 more . So If he dies in 8th year , it would be 10 lacs (Sum Assured) + 2.4 lacs (bonus for 8 yrs) = 12.4 Lacs and the policy Expires .

If Ajay survives the Policy and does not die at all

In this case, Ajay will pay his premium upto 15 yrs and then in 15th yr, he will get back the Bonus accumulated (not sum assured), so may be it would be 4.5-5 lacs assuming Rs 30 as Bonus for every 1000 SA. Also he will get 55,000 per year(remeber 5.5% of Sum Assured) as annuity till he dies or upto age 100 .

He will also get Loyality additions , this will again be a very small amount just like Bonus , but this is not assured at all. Read this for same concept : Term Insurance with Return of Premium

If Ajay survives the Policy and Dies Later.

Its almost the same case as above, in this, Ajay will get Bonus at the end of 15 yrs and then He will start recieving 55,000 ever year. And suppose he dies before age 100, he will receive the Sum Assured of Rs.10 lacs and thats it .. The game is over and then LIC doesnt recognise him there after.

Ajay is not able to pay premiums because of some problem and wants to stop.

This is possible only after 3 yrs of taking the Policy, If he wants to stop it before 3 yrs, then sorry buddy, just forget your Money and go home cry. If its after 3 yrs, then He has two choices

  • Make the Policy Paid up : In this case, you stop the Premium payments and you will get your Premiums and Bonus Accumulated will date at the end of the Maturity. You Sum assured will also reduce in Proportion to Premiums Paid, so if you stop the policy in 6th year, your Sum assured will reduce from 10 lacs to 4 lacs (40%), as you have paid the premium only for 40% of the tenure (15 yrs), thats 6 yrs.
  • Take your Money Back : After 3 yrs of completion, the Policy acquires a Surrender value, generally its the Net Present Value of money in todays term what you are going to get at the end. See this post on Net Asset Value. So if you are going to get 5 lacs at the end of 15 yrs and todays worth of that money is 2 lacs, you will get 2 lacs today.

Watch this video to know about other features of this policy:

What is the Return of Jeevan Tarang Policy overall ?

Even if you receive all the annuity upto your age of 100 , the CAGR return for this policy using IRR Analysis comes to mere 4.72% .

I have taken the above example and assumed 5 lacs of Bonus and no loyality additions , even if we consider 7-8 lacs of Bonus and Some loyality additions, the CAGR return Does not cross 6% CAGR .

Why this Policy excites people and general people get fooled?

These kind of Endowment policies make sure that you concentrate too much on numbers and it traps your mindset in the present moment , One who is able to forsee beyond “now” can understand the real value of these Policies .

We concentrate on numbers, If we get something for a long time and we pay for less time, it appeals to us, and hence this policy takes care of that very beautifully, You pay for 10, 15 or 20 yrs and you get back till you are Age 100, Sounds great !!0

Psychologically our mind is programmed by nature to think about the best case for ourself, but how many of us will survive upto 100 yrs to get annuity back, The average person thinks emotionally , Insurance Companies work on Data, Statistics, probability Theory and complex calculations, which tell them that average person will die at 60-70, and only 1-2 will survive till 100 years of their age.

Most of the people see Numbers and Present, The policy will demonstrate how much You will get at the end of the Maturity but it never tells you how much will it be worth then and how much will it help you in your Financial goals. We never think that Rs.100 today can buy much more than Rs.100 after 15 or 30 yrs.

We know this somewhere inside us, but out mind just doesn’t feel everytime the same way, that’s the reason you need to calculate things by hand, on paper or computer and do some small analysis like I did on this article. Then you get the clarity

Trust and Blind Faith, We trust companies because they have been in existence from long time and our parents were made to believe that these are the best friends in our life, they will protect our Future. Love and “Taking Endowment Policies” in India has similarity.

I grew up hearing Love is Blind and experienced it too, and I feel that its same with Taking Endowment Polices. People just take it blindly, some new Policy comes up and bang !! It has to be great, no matter what, because it comes from the GOD company !!

No one will concentrate on 4 important features of his portfolio and how that policy fits in, Look at GFactor of a product to find if it suits you.

What are the Limitations of the Policy

  • Why age 100? How many people are going to live upto age 100 , why putting that number at 100, why not increase it to 500, even though life expectancy is just 60-70. Not more than 1-2 in 100 live upto 100.
  • In case of Ajay, if his monthly expeses is 30,000 (considering married, even though I doubt he will ever get any one), after the accumulation period of 15 yrs, he will start receiving yearly pension of 55,000 per year, read it again, 55,000 per year, but now after 15 yrs, even with 6% of inflation his monthly expenses has gone upto 72,000 . And his policy pays him 55,000 which cannot even take care of his 1 month of expenses . Now i can see him pulling all his hairs .
  • If he is dead at age 70 , His family would get back the Sum assured of 10 lacs and at that time , it can only pay for his family’s 3-4 months of expenses and his Funeral cost , thats it .. Aha .. atleast something , so one this is confirmed , There will be no financial burden , pun intended .

Have a question in Mind , Ask a Question from Jagoinvestor Here .

Can we do better?

This is the question which we should always ask in every situation of our life, not just Financial planning. Lets take care of Ajay’s situation in Jagoinvestor’s way and plan him something better than Jeevan Tarang.

With Rs.71,600 per year to pay for 15 yrs, lets see what can we do.

First thing First, Lets cover his Family first from the Mis-happenings of life an secure his dependents, Lets take a Term Insurance of 50 lacs for maximum tenure of 30 yrs, Premium would be close to 13k or 14k approx, lets assume 14k. So out of 71,600, 14k is gone and we are left with 57,600.

Now lets put 21,600 each year in PPF for 15 yrs. We are now left with 36,000 to invest, we will start Rs.3,000 SIP per month (Rs 1000 each in 3 different Equity funds) for 15 yrs . See list of some good Equity Mutual funds for 2009 .

PPF will accumulate to 6.3 lacs in 15 yrs and Mutual funds will accumulate to 15 lacs in 15 yrs assuming a pessimistic return of just 12% (Historical return has been more than 17% and last 5 yrs return are more than 25%). Lets assume just 12% and not 18-20% even though its possible because our aim is to do better than Jeevan Tarang and achieve our goals and not compete with some one.

So total amount will be around 21.3 lacs at the end of 15 yrs. Now lets visit and see our Scenario’s again and hows does it compare now.

If Ajay dies before 15 yrs :

Gets 50 lacs from Term Insurance and also the money from PPF and mutual funds, which will be more than 50 lacs 🙂 . We beat Jeevan Tarang by huge margin in this case.

If Ajay survives and Does not Die at all :

In this case he already has 21.3 lacs accumulated and now he can use this amount to buy an Annuity which will pay him more than 1.6 lacs Per year, much more than what he was getting in LIC policy.

As a toppings, he also has a 50 lac cover for another 15 years. We can generate 3 times more annuity than Jeevan Astha here, again beat by huge margin.

If Ajay survives the Policy and Dies Later :

In this case if he dies in next 15 yrs , his family would get 50 lacs from Insurance (10 lacs in LIC), apart from this he will have his 21.3 lacs growing every year.

If he dies after 15 more year, There will be no Insurance money, but his money would have grown a lot by now .. If he dies after 15 yrs (total 30 yrs from starting), his money would have grown to 1.17 crores assuming 12% return per year (no annuity every year). and if he dies after 25 years (total 40 yrs from starting , means at age 70), his money would have grown to 6 crores.

Now incase you don’t want to faint, don’t ask me how much would have he had if he lived till age 100 and left his money to grow, Its 13 crores 🙂 . I have not assumed any annual annuity here, we can do that but the result would remain almost same. We beat Jeevan Tarang by hugest margin in this case. See how we can create Wealth using Equity in Long term.

Ajay is not able to pay premiums because of some problem and wants to stop.

His money will still be in PPF and Mutual funds and keep growing, there is no liquiditity issue with Mutual funds, he can withdraw from mutual funds anytime, even from PPF he can withdraw partially.

If he has limited money, he can at least pay his Insurance premiums and still get covered for 50 lacs, no big deal there. In every aspect it beats Jeevan Tarang

Note : For doing better than Jeevan tarang we have invested in Mutual funds which are risky instruments , but anyways we are not in great position with Jeevan Tarang .. so taking risk is worth it . If one is too concerned about risk , then even plain PPF will be better .

Conclusion :

Think Logical , Think mathematical , Think smartly and at last THINK !! .

Note : The figures have not considered the rebate provided by LIC, and hence the actual figures can deviate a bit from the actual numbers used here, but it wont be significant and the review still holds . ahh .. tired now !!

Subscribe
Notify of
guest

This site uses Akismet to reduce spam. Learn how your comment data is processed.

496 Comments
Inline Feedbacks
View all comments
Balaji
Balaji
7 years ago

Hi Manish,
My wife(age 29) is working in IOB employee with net pay 26k per month and investing in NPS from her salary for Rs 2600 per month. Before marriage she got Jeevan tarang plan for 72,000 PA (Rs 24,610 three times). I told my wife if I had know I would have made her to invest in TERM INSURANCE AND MF THROUGH SIP. She has already paid three years. Now I see u have advised toto dump after three years which will be better. Hence I got the following doubts.

1. Is it advisable to tell my wife to dump that policy now and go with term and MF.( since it is only three years and she has invested 2.1 lak now)
2. Any idea what will be the money value she will receive if she goes for Paid up option. And were to look or ask for it?

Regards
Balaji Srinivasan

Jagoinvestor Admin
Jagoinvestor Admin
Admin
Reply to  Balaji
7 years ago

Hi Balaji

This is very specific query which you should follow up with the concerned authority only. We wont be able to comment on that

Manish

Umesh
Umesh
7 years ago

Hello Sir,

I have purchased Jeevan Tarag policy in the year 2006 and its sum assured amount is 300000 with the tenure 15 years.
I have paid 10 years premium. I would like to paid up this policy as I don’t think this is more benifical as I have purchansed term plan for the insurance purpose.

Can you tell me the amount if I paid up this policy, Is it good time to paid up this policy? What will be the amount I will get for the same.

Ravikumar
Ravikumar
7 years ago

Hi I am bit confused.
You want me to surrender or paid it up the policy?

Which one is better? I am thinking about Paid up option. Pls suggest

Ravikumar
Ravikumar
7 years ago

Hi I have this policy for 20 years for Rs.5,00,000 and completed 10 years now. I want to Paid up now and invest in mutual funds(as I have term plan already)2000 monthly. Is it a wise decision?

anil
anil
7 years ago

Sir, i have jeevan tarang police of 500000 year 2o. after twenty year when my policy matured and how much amount i get .

Sangeetha
Sangeetha
7 years ago

I have 3 Jeevan Tarang policies (10 lakhs Sum Assured for each policy)and have paid 4 premiums till date:
1)myself 40 years old (20 years tenure and 50k premium amount); 2) son 2 years old (20 years tenure and 50k premium amount); 3) daughter 10 years old (15 years tenure and 70k premium amount). Is it wise to close all the 3 policies or continue with my policy and close the children policies

Sangeetha
Sangeetha
Reply to  Sangeetha
7 years ago

Thank You for your reply chauhan. is it unwise to surrender all my policies.

RaviKrishna
RaviKrishna
8 years ago

Hi Manish,
I just have a doubt from on Jeevan Tarang. If I opt for surrender of my Jeevan Tarang policy, I will be getting 3.56 lacs against the premium payments of 3.93. However if I make it paid up, I will get 7.41(includes bonus) at the end of year 2026. My question to you is does it make economic sense to wait for another 10 yrs to get the money or can I withdraw the amt now and invest in ELSS or put some of the money in Home loan prepayment plus some in ELSS. Please let me know your views on this.

Ravi
Ravi
8 years ago

Hi,
I have taken a Jeevan Tarang in Aug 2006 for 800000 for 20yr term. I am paying premium of 39376. I have paid for 10 yrs now. Is it best to surrender or make it paid-up.

Rajesh
Rajesh
8 years ago

All those who were bashing the author or jagoinvestor would now have enough data to compare where jeevan tarang would have got them and where would they have been if they had chosen good MFs and a term plan. LIC is the biggest sucker of an ordinary citizen and black money of politicians. In my experience they have never paid good returns to anyone in any policy yet they continue to prosper because we dont want to listen to honest financial advise.

Ramanujam
Ramanujam
8 years ago

Consider this!
S.I. = Rs.5 lacs
Term = 20 Yrs

What will one get if a Jeevan Tarang policy is surrendered soon after the maturity?

Rasool
Rasool
8 years ago

Hi,

I have jeevan tarang for 15yrs ( sum assured 500000 with anual premium of 34000). And I paid 5 premiums. So if I want to discontinue this policy after it got matured, will I get sum assured + accured bonus till maturity date? I.e., without 5.5% of sum assured annually.

Thanks
Rasool

Ammar
Ammar
Reply to  Jagoinvestor
7 years ago

accured bonus + 85% of sum assured

dipankar
dipankar
8 years ago

Hi Manish,

I have Jeevan Tarang policy with sum assured 6 Lakhs and term 20 years, started at the age of 35 years.

I am 41 now and I have paid 7 premium 30400 each. Is it wise to surrender or make it paid up? Or should I continue with the normal policy.

Mohammed
Mohammed
Reply to  Jagoinvestor
8 years ago

Hi Manish,

I have this policy for 15yrs tenure. And I have paid 5 premiums till now. Yearly premium of 34360. LIC agent told me if I surrender I get 132968. And my current PV + bonus is 284000. So if I take paid-up now should I get 284000 or more after 10 years? Also what if I surrender/paid_up after the policy is matured(I.e., after paying all premiums). 1). What if I want to discontinue after taking maturity bonus, will they pay assured sum?

Please let me know.

Thanks

Chaya
Chaya
8 years ago

Hello I’m 53 have jeevan ta rang n paid for four years want to discontinue, pl advise. Also how else can I invest for good monthly returns for after I’m 60. Thank you Chaya

Bhaskar Ranjan Gohain
Bhaskar Ranjan Gohain
8 years ago

I have Jeevan Tarang Policy of S.Assured Rs 200000 for 15 yrs accumulation period. Recently I have revived the same policy which have been laosed for last few years by taking a loan of Rs 50000 from LIC against the same policy and now the policy is running on. My question is though I am paying the premiums and loan interests, I am unable to repay the capital of the loan amount at present. So, if I do not pay the capital back then how LIC will recover it? Will LIC recover the loan from my Bonus and Annuities or Sum assured? How it will effect maturity of yhe policy? Please explain.

Linga
Linga
8 years ago

Hi Manish,

I have a this Policy with SA of Rs,25,00,000. Term is 20 years. I started this policy from Oct 2006 and I have to pay my premium due by this month. The premium is Rs. 1,23,050. Please advice how I can close this policy without losing too much of money.

Thanks,
Linga

R
R
8 years ago

Hi,

I have taken policy for my kid started at the age of 2 years , paid only 2 premiums.
Should i pay 3rd premium.
I had taken for 20yrs, 2.5 Lacs & premium of 12500.

Thanks in advance

Abhinandan
Abhinandan
8 years ago

Hi Manish,

I own a Jeevan Tarang policy with sum assured 15 Lakhs, started at the age of 21 years.

I am 26 now and I have paid 5 premium 74000 each. Is it wise to surrender or make it paid up? Or should I continue with the normal policy.

Abhinandan
Abhinandan
Reply to  Abhinandan
8 years ago

Forgot to mention that its 20 years policy.

Sunita Gosain
Sunita Gosain
Reply to  Abhinandan
3 years ago

I hàve paid 7 yrs premium of jeewan tarang for my two kids now I need money then how much Amy I have got or I got my own money / my own money + bonus..

Manas
Manas
8 years ago

I have a Jeevan Tarang Policy of Rs,100000,
Term 15 years, ( 4 yr complete) But unfortunately my father has died and i can’t continue my policy .

how to continue my policy ? any idea & suggestion for me ,

Please advice.
Regards,
Manas

Ankur
Ankur
8 years ago

I have 3 Jeevan Tarang as per below details:

i’m paying premium of 32000 for each of them and term is 10 years i.e I’m paying 96000 per annum

2 of my policies i took in 2009 and 2010 respectively

Last policy, i took in 2013

Please let me know the best option

Sunny
Sunny
8 years ago

Hi

Thanks Manish for information which your shared ,
I had a Jeevan tarang policy from Dec 2013 , And i dont wanna continue with same please suggest me what can i do for same should i surrender right now or wait for at-least 3 years .
And after 3 years what will i get from LIC ?
My Premium id 8769 per Quarter .
Total paid 7 premium .

Please suggest me best way to close this .

Sunny
Sunny
Reply to  Jagoinvestor
8 years ago

Hi Manish

What is the difference in Paid up and surrender ?

Sunny
Sunny
Reply to  Jagoinvestor
7 years ago

Hi Manish

Thanks for information but how can we calculate surrender or paid up amount ?