POSTED BY April 17, 2012 9:56 pm COMMENTS (7)
ONHi Jago team,
I wanted to take some policy for my child and also looking for some investment in his name.One of my close friend has referred LIC’s Child Career Plan. I have also read many blogs for this policy, however still confused as returns from this policy looks attractive as per below table.
Child Career Plan-Plan- 184
Sum Assurred: 5,00,000/-
Premium Paying Term = 18 Years
Policy Term = 23 Years
Premium = 24725/-
The leaflet(given by my friend) shows that I will ge getting following amount for SA 5,00,000/=
18th year = 5,10,000/-
19th Year = 75000/-
20th Year = 75000/-
21th Year = 75000/-
22nd Year = 75000/-
23rd Year = 3,75000/-
Total premium paid = 4,45,050/= ( for 18 years, each premium 24725 = 4, 45,050)
Money return = 11,85,000/-
According to LIC website, it says as follows.
Survival Benefit:
On life assured surviving to the end of the specified durations an amount specified below is payable:
5 years before the date of expiry of policy term – 30% of the Sum Assured along with vested
Simple Reversionary Bonuses
4 years before the date of expiry of policy term – 15% of the Sum Assured
3 years before the date of expiry of policy term – 15% of the Sum Assured
2 years before the date of expiry of policy term – 15% of the Sum Assured
1 years before the date of expiry of policy term – 15% of the Sum Assured
On the date of expiry of policy term – 15% of the Sum Assured along with Final (Additional) Bonus, if any.
Reversionary & Interim Bonus for 2011 is as below for Child Career Plan.
11 to 15 yrs = 34/- per thousand
16 to 20 yrs = 38/-
21 yrs & above = 40/-
According to above table, my calculation shows that around 10.5% return which is greater than PPF(8.6%)(it may not be correct as well). I would like to understand how bonus is calculated and wanted to know if this LIC really yeilds more than PPF?.
I have spread my investments in few LIC policies, PPF, Mutual fund and directly in shares. I am not interested in term plan as my present company covers at its best and I am happy about it. However for future planning(with less risk) I wanted a good investment
Sorry for long question.
Best regards
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HI All,
Thanks for reply.
Even I am not sure how projections were calculated as it was on printed leaflet. Hence I wanted to know how LIC bonus were calculated.
Below is as per my calculation.
5 years before policy term – 30% of the Sum Assured along with bonus = That is after 18 years,
30%*5,00,000=1,50,000 + Bonus = 500000/1000*34*18=306000 = Total 4,56,000/-
4 years– 15% of the Sum Assured ( 15% * 500000=75,000)
3 years– 15% of the Sum Assured ( 15% * 500000=75,000)
2 years– 15% of the Sum Assured ( 15% * 500000=75,000)
1 years– 15% of the Sum Assured ( 15% * 500000=75,000)
On the date of expiry of policy term – 15% of the Sum Assured along with Final (Additional) Bonus,
( 15% * 500000=75,000) + 500000/1000*38*5=95000 = 170000/=
(Bonus for years from 18 to 23 = 38 Rs per 1000) + some additional bobus if any
So as per my calculations, the total would be 9,26,000/= for the investment of 4, 45,050. The return is not guaranteed.
I have decided to go with Term plan + PPF.
Dear Jeev, Please accept my congratulations in advance for a wise choice.
Thanks
Ashal
Dear Jeev, There are 2 basic problems in your projected nos. 40 Rs. per anum per 1000 sum assured has been taken as constant or should I say guaranteed but it’s not the case. At the end of the policy term, again a final bonus of 300000 Rs. has been assumed but in actual it ‘ll be very lower than what you are anticipating. Remember this policy is not a guaranteed return type policy. Even If I assume your own nos. the XIRR is coming 8.1% which is too good to be true. I’m not counting tax benefit on this policy.
Can you imagine, a simple product like Term plan + PPF can surely beat this product. Please do not go for my words, check on your own.
Thanks
Ashal
I think there are some issues with the values presented in the original query.
18th year = 30% mean 1,50,000 (and not 5,10,000).
Then 19th to 22nd = 75,000 each.
23rd year=75,000 (and not 3,75,000).
plus any bonuses @ 3.5-4.0%.
Please recalculate.
Doesn’t 34 per thousand actually mean 3.4 per 100 = 3.4%.
I would keep money in Yes bank then, which at this point of time gives me 70 per thousand!
How did you arrive at the payout for year 18 and at end of policy term?
Also for years 19-22 you will get 15% of 5 lacs = 15k each year not 75k. If I make just this one change I get an IRR of 6.87% already. If you can explain how the values for year 18 and end of policy term are arrived at we can discuss!
And – Term Plan from employer is good. But unless you are in govt service your job is never secure. You may perhaps change jobs after 5 years. The term plan gets expensive as one grows older. Take a term plan now.
I rue my numbers on the 75k vs 15k, call it key in error.
Would be interested in knowing the year 18 and post maturity calculations you have – if they are guaranteed/expected though