LIC’s New Jeevan Anand
It is an Endowment Policy that provides us with a life insurance as well as a lump sum at a desired age (at the end of the term). But the package of life insurance with savings in endowment plans can be realized using other, more efficient financial products also.
Term insurance plans provide us with the same life insurance at considerably lower premiums as compared to Endowment plans. But they do not provide us with an option of saving nor any investment opportunity. For the purpose of saving our hard earned money and growing it overtime there are some basic investment options available at our disposal:
Note: The past average for all these assets class has been high than the one taken, assumptions of return is no guarantee for future returns but has been simply projected based on expected long term average.
Apple to Apple Comparison: We will compare LIC’s New Jeevan Anand vs. Option 1,2 & 3
LIC’s New Jeevan Anand proposes to give an assured lump sum or a benefit at the end of the term period or at the demise of the policy holder within the term period, along-with the assurance of a life cover in both the cases.
Please find the details of LIC’s New Jeevan Anand Plan:
In this example for LIC’s New Jeevan Anand benefit payable on survival after 35 years is:
Scenario 1 (4% p.a. return)- Rs. 1,14,000
Scenario 2 (8% p.a. return)- Rs. 2,56,000
Now, We will first look at how a Term Insurance can be used to cover the risk portion of LIC Jeevan Anand. A Term Insurance plan gives a lifelong cover, but does not give any benefits in the form of returns. The premiums needed for a term insurance policy per year are very low. Ex: Premium of Rs. 200 /- per year for a cover of Rs. 1 lakh /-. In our comparison we will take a term insurance with a cover of Rs. 1L which will have a yearly premium of Rs. 200 /-.
Let us now look at how the return portion of LIC Jeevan Anand can be covered using Options 1,2 & 3. The following table illustrates the data for an entry age of 30 years, an insurance cover of 1L and for a term period of 35 years for a yearly premium amount of Rs. 3,165 /- exclusive of service taxes.
Instead of investing Rs. 3,165 /- yearly in LIC Jeevan Anand, if the same amount, less the yearly premium of the Term Insurance i.e. Rs. 200 /-, which equals Rs. 3,165 – Rs. 200 = Rs. 2.965 /-, is invested in any of the aforesaid combinations, then the results are as follows:
This table assumes the policy holder has outlived the term period and that the Term Insurance wont yield any returns. It compares the survival returns from LIC Jeevan Anand vs. the survival returns of the other three combinations.
Returns of all the 3 options supersede the returns of LIC’s New Jeevan Anand while Life cover remains same.
Hence we can see that a combination, of any of these investment options with a term insurance plan, is more beneficial, as compared to any other Endowment Policy. Moreover the combination of Equity Mutual Funds with a Term Insurance surpasses any other combination discussed above.
Note: Sensex CAGR for last 35 year period (i.e. from 1st April, 1982 to 31st March, 2016) has been 24.76% approx. Taking above example if we invest in Option 3 i.e. Equity Based Mutual Funds (EQ) + Term Insurance (TI) – The maturity amount would have been INR 6.3Crore . The Multiple of Principle is whooping 612.20 Times. All figures are taken purely for enhancing understanding & in no way depicts or promises any assurance of Future Returns.