Earned LIC bonus v/s Fixed deposit/PPF

POSTED BY Ramz ON June 18, 2012 11:38 am COMMENTS (3)

Hi All,
Just want to clarify myself in one situation regarding my LIC policy surrender and investing that amount in another scheme(PPF/Fixed deposit). May be I made some assumptions which am not anware. Please correct me if I am wrong.

I am holding LIC Jeevan Anand. and planning to surrender.

However as of now total amount of installments is 1.25L(5 years) with yearly premium of 25K. Sum Assured is 5L. Remaining period is 15 years. Earned Bonus is 1.1L

So with these calculations, lets say if I continue with Jeevan Anand and bonus is being paid in the same rate ie around 1 L for every 5 years of premiums(1.25 L), then at maturity
I will be total total amount of 9 L(5L premium+ 4L bonus).

If I surrender the policy now, I will be getting the amount equal to 75K, which I was told will be getting around 2-3 L if I invest in PPF.

Now if I invest that premium of 25K every year in PPF, I found I will be getting around 7L after maturity.

So with these calculations, since I am already into 1/4 period of LIC total terms, is it ok to continue with those premiums and get the bonus to play it with safe side and not loose earned bonus.

May be this might not apply to everyone. Also I am not aware about withdrawal issues of PPF. And I know we cannot take the money back from LIC untill maturity if we are expecting complete bonus payout. I also heard that LIC Jeevan Anand is best endowment policy available. So may be after all that expectation of 1 L bonus for every five year is not too optimistic I suppose.

Please help if I am missing any link here. And of course keeping that money in MF or in FD might even fetch more returns. As I mentioned just played it safe in this aspect and plan other investments properly from now.

3 replies on this article “Earned LIC bonus v/s Fixed deposit/PPF”

  1. Dear Ramz, In future years there is no guarantee of same rate of interest be it for PPF or for LIC (in terms of bonus rate). So the future calculation is not that much easy to compare between the 2.

    In my personal opinion, you are better off by surrendering this plan & moving full throttle into Eq. for the 25K Prem. amount + the surrender value.

    Thanks

    Ashal

  2. Ramesh says:

    The bonus rates of LIC are not fixed.

    The PPF rates in future are not fixed.

    So, how does it matter, which is better. Both are risky, since there is no fixed amount set to either of them. Risk= you do not know how much the amount will be.

    Long term debt anyways means you are earning less than inflation, so what is the exact point in calculating how much less than your money becomes after 15 years.

    Better to focus your energies in doing something in your portfolio, which will help you atleast retain the purchasing power of your money.

    I hope this makes you aware of the biggest risk of all- the inflation risk.

    Ramesh

    1. Ramz says:

      Thank you ramesh.
      I am also concentration on improving my portfolio as I have surplus amount to invest other than that 25K per year which I am using for LIC premium.

      Just want to know only about this particular case and LIC surrender issue. Thanks in advance.

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