Jeevan Saral – Will Loyalty addition make HIGH return

POSTED BY sunil ON December 28, 2010 8:43 pm COMMENTS (7)

This is about Jeevan Saral as an investment option instead of NSC/PPF … I discussed with couple of development officers directly to gather such info.. Please read on
W.r.to endowment policies, it is right that 6-6.5% of return, but this policy differs from others that the projected return as 10% compounded because,
1. Loyalty addition applicable ( a kind of bonus ) to policyholders who are holding the plan for 10years and above
2. The plan doesn’t have tax procedures. i.e LIC needs to pay 12.5% service tax + 5% government share on profits, but the profits from this plan are exempted from TAX altogether
3. The corpus of this plan is invested as Loan to industries like TATA and others for @13%
4. The objective is long term i.e 10yrs and above so one can expect good return of around 10% compounded or 8.5% in a worst case..
5. LIC mosted trusted org itself has distributed the brouchers with projected profit as 10% compounded.. And of course return is non taxable !!
Please post your views on these..

And an article about the policy in Hindu
http://www.hindu.com/2004/03/15/stories/2004031500261800.htm

7 replies on this article “Jeevan Saral – Will Loyalty addition make HIGH return”

  1. milan says:

    Can someone pls help me decode variable component of the table at LIC website?
    http://www.licindia.in/special_plan_001_illustration.htm

    Under scenario 1 and 2 it says on 10th year policy holder will get 7000 or 18000 as Variable component. Disclaimer says Scenario 1 and 2 is computed with return assumption of 6% and 10% respectively.

    Numbers doesn’t tie up, with 6% and 10% returns, variable component should have been 6000 and 10,000. Can some one pls help understand the calculation.

    1. Its really a kind of secret on how those are calculated. I suggest contacting your agent on this .

  2. saurabhjohari says:

    Anyone here who has answers for inferences by Ramesh.

    This plan looks very dull if all that Ramesh said is true.

    I was going to buy this plan. Now confused.

  3. ranthwal says:

    As per me this is the cheaper plan then any Term Insurance of any insurance company. Just client would be able to pay in a savings mode. Rest as per me this plan is Debenture based plan. Under which LIC will pass on 100% profit to its policy holder. In this plan LIC does not have to implement RBI Guidelines & can share profit. This is the plan one should always go for .

    1. Dear Ranthwal, What RBI has to do with LIC? Am I missing something here? Please elaborate it.

      “As per me this is the cheaper plan then any Term Insurance of any insurance company.” How? Please show me the nos.

      “Rest as per me this plan is Debenture based plan.” Can you elaborate it more.

      Thanks

      Ashal

  4. Ramesh says:

    @Sunil

    What I can get from the information that is provided about this plan is
    1. 250 times cover irrespective of age. This means 12.5 times the yearly premium! So obviously you do not want this policy for life insurance. (even after returning my premium back, the cover is woefully inadequate).
    2. Coming to returns. The returns are not guaranteed! It is a with-profits policy, so if there are no profits then no bonuses. Interest will only be given at the end of 10 year and not before that (before that only premium will be returned, if you want to withdraw).
    3. By the way, whether the govt will get the 5% profit share will be decided in the 10th year (at the time of loyalty bonus).
    4. Even if we say, the govt becomes extremely lenient and does not take any profit from this plan, then the actual return will get bumped by 5%. That means if 95% gives you 6%, then 100% will give you 6.31%. Amazing!!
    5. IRR of 10% is as per the IRDA guidelines and not for this particular policy alone. However, the actual return from this policy depends upon the AGE and TENURE of the policy.
    6. The handouts that are provided by the LIC agents are not entirely legal. You cannot show that handout to a person of 25 years, 30 years and 50 years at the same time. (Probably they have a small footnote, regarding the age of the person to be 30 years. Not sure about this.)
    7. Max. that you can have from this kind of endowment policy is 6.3-6.9% (if you believe that endowment policies give you 6-6.5%). I think their return is even lower and that too not guaranteed at all.
    8. Think about one more thing, TATAs can offer FD and NCD at 11-12%, then why will they ask LIC to get funds at 13%. 😉
    9. Even long term capital gains are taxfree.
    10. Actually the handouts show about 11-12% compounded yearly returns in the numbers. Even stock markets cannot be “sure” about giving those returns!
    11. If you have a 10 year horizon, without any second thoughts, you can invest in equity MF!!

    Hope this helps.
    Ramesh

  5. bharat shah says:

    i do not no much , but regarding point no.3, is lic investing differently for every policy plan sepatately?

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