Life Insurance Corporation of India has launched a new product, Bima Account, which offers liquidity, flexibility, transparent charges and guaranteed returns. But its performance has got to be among the worst, as you will make a capital loss for more than nine years
Can a guaranteed return of 6% a year land you in a situation where you make a loss over nine years? Yes, if you buy LIC's newly launched Variable Insurance Plan (VIP) products Bima Account-I and II.
The ads for these products are all over the print media. LIC is splashing full-page ads in The Times of India and other publications. According to the ad, the product guarantees returns of at least 6% per annum. Unfortunately, the ads conceal the most toxic aspects of the product.
While a guaranteed 6% per annum is prominently advertised, there is no mention about the astronomical charges and the simple fact that 6% per annum is on the investment, net of all the charges! The charges are astronomical-27.5% in the first year, 7.5% in the second and third years and 5% each year thereafter, of the premium paid.
The premium you pay for 10-15 years (policy term) of Bima Account-II will break-even in nine years even with a guaranteed 6% per annum for a policyholder of age 45 going for insurance of 20 times annualized premium. What might save the day for Bima Accounts is a hefty bonus from LIC.
At this time, LIC is not willing to comment on the bonus factor. The bonus will be given only if the policyholder pays the premium for the policy term even though the lock-in period is only three years. Remember that while the low returns are "guaranteed", the bonus is not.
If you have to depend on a bonus to do better than only breaking even in nine years, you are taking an investment risk. The irony is that these plans are targeted for conservative investors. The Bima Account products are obviously timed to attract naïve customers during the tax-savings season-the very customers who are in a hurry to shove in up to Rs1 lakh in some financial instrument to get 80C tax savings. Thanks to LIC's mighty network, which gives it a presence in every corner of the country, it will rake in the money, but at what cost to customers?
There are far better plans than the Bima Accounts. Like the traditional plan ICICI Prulife GSIP which gives real 5% guaranteed returns on your investment rather than the surreal 6% guaranteed returns from LIC's Bima Accounts. Moreover, GSIP will also give a bonus. A conservative investor looking for 80C savings would be better off putting money in PPF or opening a five-year tax-saver FD that offers interest up to 9.25% per annum. (IDBI Bank offers this rate today). As such, the funds in LIC's Bima Account cannot be withdrawn during the lock-in period of three years even if you discontinue premium payment. The insurance need can be taken care of by a term plan.
It took the Insurance Regulatory and Development Authority (IRDA) a long time to ban the Universal Life Plan (ULP) that was rechristened as the Variable Insurance Plan (VIP). How did it clear this product and the advertisement? Will IRDA be caught napping this time too?
The Bima Accounts offer you the flexibility of reducing the sum assured during the term of the contract, subject to a minimum limit. When the sum assured is reduced, such change will be effective from the policy anniversary following the date of request. The premiums can be paid regularly on a yearly, half-yearly, quarterly or monthly (through ECS mode only) basis over the term of the policy. The minimum premium is Rs600 per month through the ECS mode for Bima Account I, while it is Rs1,250 per month under Bima Account II. The minimum yearly premium for Bima Account I is Rs7,000 and Rs15,000 for Bima Account II. The policy term for Bima Account I ranges from five to seven years, while it ranges from 10 to 15 years for Bima Account II.
There is an option to pay additional (top up) premiums without any increase in risk cover, to the extent of total basic premiums paid under the policy. A loan facility is also available immediately after the first policy anniversary.
If premiums are not paid within the grace period, the policy will become a paid-up policy. The policyholder has the option to revive the paid-up policy within 12 months from the date of the first unpaid premium. During the revival period, the life cover will cease and no mortality charges shall be deducted. The balance in the policyholder's account during the period of revival will earn guaranteed interest rate of 5% per annum without debiting any expenses. On revival of the policy, the guaranteed rate of interest on the policyholder's account will again be 6% per annum from the date of revival.
The sum assured under Bima Account I ranges from a minimum of 10 times the annualised premium to a maximum of 20 times of the annualised premium up to the age of 35 years, 14 times of the annualised premium for between 36 and 45 years of age and 10 times of the annualised premium for between 46 and 50 years of age.
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When i chked with my family Chartered accountant he clarified that there is nothing like LIC is a Govt. Company .. however , its Promoted by Govt. in past. Even he told me that all the Insurance Companies are regulate by IRDA.. so it doesn't matter in which company u r investing.. Whether LIC or TATA or ICICI .. all are same for that matter.
My suggestion: If you are buying a Insurance a Product.. Don't look at companies ..look and check product only... There are many more profitable Guaranteed products rather thn this LIC Mania... Best of Luck !
Charges are nominal for insurance. Please appreciate the transparency instead of paying for hidden costs and complaining afterwards.Bima Account gives you all that is ethical and all that is good- 6% compounding interest+insurance+additional interest+ no lapses+no charges for surrender+A request,Please study the plan well, it will grow on you when you realise the finer aspects.
Before commenting about an insurance product you should analyze the market. I've been working in this field for more than 3 years. Nobody is ready to take a pure term plan although it is available at cheaper rate. People wants minimum guaranteed returns from the premium he pays. That is the main reason for introducing these plans. No matter whether it goog or bed but it will be sold like a hot cake.
Kindly keep in mind that everybody buys or invest money in any of the available instrument with a specific purpose and idea and hence nobody can generalise any thing with anything.
Thanks for cleating awareness in public so as now people will ask us more questions before buying this product. Thanks once again.
Then i am told my policy is rejected since it is available only for those people who don't have any other policy with LIC .
It is defenitely not a ULIP. Your agent has not understood the policy as such. Secondly, there no such criteria that only who has or does not have can get this policy. Ant body can get. Do not depend only on agent and be wiser then your agent always to get best product at best price.
U FOOL first read RTI act
.. High Court is not a forum for RTI Act...
...RTI act is not applicable to private cos.
...RTI act is not for finding ur paternal origins
AS RTI ACTIVST U SHOULD MORE BOTHER ABOUT UNAWARE, INNOCENT POLICYHOLDERS MONEY, WHO DONT HAVE ANY RISK APPETITE FOR ULIPs.
First one should try to cover himself for unforseen Risk by calculating HLV. Thumb rule we follows is that 15 Times of Annual House Hold Expenses less your current liquid asset should be your risk cover. Now for general middle income person spending Rs.2,00,000/- p.a. will require 30,00,000 lacs insurance. No policy other than Pure Term Insurance can suffies this requirement. As all other policies will have annual premium at least equal to half of his expenses. HENCE THINK WISELY & COVER FIRST FOR RISK.
Now about investment, why should I pay such heavy charges when I have other alternatives available at cheaper cost in the market?
See you arived to an answer, where you must compare the cost paid for getting benefits.
Jeevan Pendhari
CERTIFIED FINANCIAL PLANNER(CM)
above as u suggested
“There are far better plans than the Bima Accounts. Like the traditional plan ICICI Prulife GSIP which gives real 5% guaranteed returns on your investment rather than the surreal 6% guaranteed returns from LIC's Bima Accounts. Moreover, GSIP will also give a bonus.”
I think u have not gown through the total calculation of GSIP.
What I got after calculation of their illustration is:
i) If person dies, nominee will get return of money at 5%. &
ii) If person alive, he will get return of money at 4%.
Regarding position to pay, IRDA annual report says ICICI Pru has more than required solvency ratio ( more than 150%) to pay its liabilities to pay.
IRDA annual report says ICICI Pru made profits in 2010 so please prove how the books of a/c are bad? Are Policy Holder's A/c & Shareholder's A/c in bad status?
Read the brochure. Guranteed Death Benefit is 5% pa on all the premiums paid; Guaranteed Maturity Benefit is also 5% pa on all the premiums paid. The difference is maturity benefit will be given on policy maturity and death benefit given on death. There is no mention of 4% anywhere in brochure.
From :- DIL SE