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POSTED BY ON February 14, 2012 11:56 am COMMENTS (4)
Dear All
Yesterday, one LIC agent (family friend) has visited our house, explaining the importance of Jeevan Ankur plan. We listened him with half-heartedly. But, he has shown amazing results.
My younger brother is 30 years and he has 1 year old son. The premium (including accident death benefit rider) for a sum assured of 5 lakh rupees works out to little less than 16,000/- for 24 years term.
In total, we need to pay a premium of about 3,83,000 spanning 24 years. The benefits are as follows:
• No Death – Maturity benefit of 5 Lakh as sum assured + 3 Lakh as loyalty benefits
• Normal Death – immediate 5 lakh rupees + 50,000 every year till 25th year of son + 5 Lakh as sum assured + 3 Lakh as loyalty benefits (This total is coming to 13 Lakh + 50,000 pa till 25th year)
• Death due to accident – immediate 10 lakh rupees + 50,000 every year till 25th year of son + 5 Lakh as sum assured + 3 Lakh as loyalty benefits (This total is coming to 18 Lakh + 50,000 pa till 25th year)
LIC Agent has shown the calculations in excel sheet, which is working out to 5.9% pa (compound interest) as returns. This is almost equal to bank FD amount for 24 years.
What I understood is even with no death and maturity, the plan is giving a genuine benefit equal to FD. With death of life, the returns are huge (beating all MFs, term plans etc).
Request you all please check the above calculations and pl. let me know where is the cache point? Are the calculations wrong or some hidden thing is lying.
Thanks & regards, KK Babu
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Dear KK Babu, most the time we think that this LIC agent is our family friend but in actual it’s Family’s money friend. From the all the 3 replies above, you have received enough inputs hence not adding more.
Just want to add one thing. The loyalty addition can’t be predicted for 25Y down the line. If India grows over all, the so called loyalty addition ‘ll come down from the projected level due to decease in growth a the economy matures.
Thanks
Ashal
LIC Jeevan Ankur review is already done by Manish. You can read it for more inputs.
Not sure if your agent’s calculation was correct. But I would assume that it is correct. Let’s come to your brother’s case now. He has to pay 16,000/- for 24 years. Let’s change this from LIC Jeevan Ankur to Term plan (5000/-) + MF(11000/-). Let’s say you take 20L term plan + Accidental Death Benefit from ICICI iCare and invest rest amount in good MFs. Annual premium will be 4986 for 30 years old for iCare.
No Death – portfolio value – 11L, used JagoInvestor calculator, expected return 10%, Duration 24 years.
Normal Death – Immediate 20 lakhs – equals to your case calculation. But if invested properly, will be much more.
Accidental Death – Immediate 40 lakhs – much more than your case calculation as it is. And if invested properly, will be much more.
Decision is yours.
i don’t go for any calculation for such complicated product instead of plain venila , namely pure term insurance for life of earning member (or at the most for the one near to start earning, for whom you spent a lot and expect something for any reason!). and any of pure investment avenues of my choice. namely pure equity, equity through mf, gold/silver, real estate, debt instruments like bank fd, bonds,debt mf, ppf/epf appropriate to my understanding. this is because such complicated products always need extra management cost, marketing cost (including the agents’ commission) , and the profit of the organization.and the organisation has to invest in debt products only, so it is definately give less as you yourself calculated less than 6% compounded, whereas safe ppf is giving 8% p.a. moreover you are bound to pay certain a/m for long term..
Dear Babu – I am surprised that the agent showed this to you in Excel. They (Sorry, specifically LIC agents) never show in Black and white – it is all double money and triple money return concept most of them talk about. Since the agent has shown the IRR (Internal rate of return) our discussion becomes even simpler.
Assume the followning:
Person A 30 years old with 1 year old son takes the above plan
Person B 30 years old with 1 year old son takes a Term Plan for 1 Crore paying a premium of Rs.9000 per annum and invests the remaining 7000 in Mutual Funds and PPF in the ratio 80:20
Scenario 1:
Year 10 – both person A and person B die: IRR = 6%
Person A’s family: Gets 18 Lacs immediately and gets 50,000 over the next 15 years
Person B’s family: Gets 1 crore (They dont even bother to check out the value of other savings). Lets leave them some time.
The mathematician in us jumps to find what the IRR is: Do this to find this yourself.
Enter minus 9000 (-9000) in cells A1 to A10 in Excel. This is the outflow. Enter 1 crore in Cell A11. Enter the formula =IRR(A1:A11) in A12. Voila – the IRR is 87%. No asset ever can produce such returns. And to begin with Insurance is not even an asset – just a risk mitigation tool. We have ignored the growth of PPF+MF here but this return alone is sufficient for the time being.
Scenario 2:
Year 26 – Both of them have survived.
Person A gets 8 Lacs with an IRR of 5.48%
Person B’s assets are:
PPF growing at 8% p.a for 25 years: =FV(8%,25,-1400,0,1) = 110536
MF growing at 12% p.a for 25 years: =FV(12%,25,-5600,0,1) = 836270
Total assets: 946,806 with a IRR of 6.65%.
However note that I have compared Apples and Oranges for life insurance. Jeevan Ankur maximum coverage is around 20 lacs (for accidental death) and Term Plan coverage is 1 crore. How long do you think 20 lacs will help a family as compared to 1 crore coverage. Not much really.
To compare Apples with Apples:
If I just take a term insurance for 20 lacs for Rs. 3000 and invest the remaining 13000 in PPF/MF in the same combination the final corpus after 25 years is about 17.5 lacs for a IRR of 10.8%.
At any given point in time Term Insurance + PPF + MF combo beats a combined Insurance+Investment combo.
Ask your younger brother to stay away from LIC Jeevan Ankur