Life Insurance: Surrendering policy? Think again

Many are stuck with wrong life insurance plans. Financial planners often advice you to surrender the policy and use the money for better investments. Raj Pradhan finds that is wrong advice in most situations. Find out when and how you should surrender life policies

Many people are unhappy with their life insurance choices. They want to get out of the policy and even whine about having...

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    IRDA has finalised the structure of the much-awaited health insurance forum. The forum will provide assistance and advice to IRDA on issues relating to health insurance. It will help in evolving policies, standard processes and definitions for health insurance. Collection and maintenance of information for efficient...

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  • LIC Jeevan Vriddhi – Guaranteed returns to compete with bank fixed deposits

    Jeevan Vriddhi is designed to attract money from the tax-savers who are desperately seeking avenues to park up to Rs1 lakh. While there are other similar plans in the market, it is LIC’s product that will command attention because of its muscle power

    Life Insurance Corporation of India (LIC) has launched Jeevan Vriddhi, a single premium traditional plan offering guaranteed maturity sum assured (SA) along with loyalty addition (if any) after completion of policy term which is 10 years. The guaranteed maturity SA will depend on the age of policyholder from eight to 50 years; it reduces with age.

    The insurance component is fixed at five times the premium excluding extra premium (based on one’s health) and service tax. In short, the plans works like bank fixed deposits along with insurance thrown in to make it an insurance product. For younger persons, it would almost double your money in 10 years. With interest rates at its peak today, LIC is willing to offer good returns, but it is for the exact same reason the plan is available only for a maximum of 120 days.

    The minimum premium is Rs30,000, for an SA of Rs150,000. If the policyholder dies during the term, the nominee will get Rs150,000. If the policyholder survives till maturity, the guaranteed benefit will depend on the policyholder’s age at the time of taking the policy.

    For example, if the policyholder would have paid single premium of Rs30,000 (excluding service tax), for a child of eight the maturity amount will be Rs59,538. If the person is aged 35, the maturity amount will be Rs57,385. The return on investment (excluding mortality charges) will be approximately 7% p.a. in this case. If someone is 50 at the time of entry, the plan will give Rs47,467 after 10 years.

    Advantages of Jeevan Vriddhi

    •  Rate of return – For a 10 year policy term LIC’s endowment plan gives about 5% return on investment (excluding mortality charges). Jeevan Vriddhi plan will give approximately 7% (age 35 years) and hence a good option.
    •  Loan – The product offers loan after completion of one policy year, which will be 70% of the surrender value. Unfortunately, the rate of interest will be 10.25% p.a. instead of 9% p.a., which LIC is offering for most of the other plans.
    •  Surrender value – The guaranteed surrender value will be available after completion of one policy year; it will be 90% of single premium excluding any extra premium. LIC may pay special surrender value which will be discounted value of the guaranteed maturity SA as on the date of surrender.
    •  Loyalty addition – Depending upon the company experience the policy may pay loyalty addition. This is non-guaranteed and considering the decent guaranteed returns offered by the plan, it will be prudent to not have high expectations of the loyalty addition.
    •  Rebates for higher single premium – For single premium of Rs50,000 to Rs99,000, the increase in guaranteed maturity SA will be 1.25%; premium of Rs1 lakh and above, the increase will be 3%.

    Disadvantages of Jeevan Vriddhi

    •  While the plan will offer surrender value after one year, the special surrender value is not guaranteed to be paid. The guaranteed surrender value will be much less than what a person can get from premature withdrawal of bank fixed deposits.
    •  The policy term is fixed and so is SA. This is not a product for someone looking for high insurance cover or longer policy term.
    •  The death benefit is five times the premium excluding extra premium that may be payable if the person is not in good health. This could lead to issues with tax exemption. The product is better suited for those who are considered as ‘standard’ health.
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    COMMENTS

    shantha

    8 years ago

    i have taken jeevan virdhi policy for 1 lkah, how much claim i can take from this policy

    chandan mondal

    8 years ago

    last date of jivan vridhi plan?

    chandra kumar khemchandani

    8 years ago

    lic jeevan virdhi

    Jerry Jose

    8 years ago

    LIC Jeevan Vriddhi policy is good so that it offer 5 times sum assured for all age group from 8 years to 50 years, even if the policy term is only for 10 years. But the guaranteed sum assured is very less when the inured is elder. So we cannot claim that it is similar to Fixed deposit. For insurance view point it is almost ok

    REPLY

    Bala

    In Reply to Jerry Jose 8 years ago

    ur understanding is wrong - read below

    1. Benefits

    i) Death benefit: On death, Basic Sum Assured shall be payable. The Basic Sum Assured shall be 5 times the Single Premium excluding extra premium, if any.

    ii) Maturity Benefit: On maturity, the Guaranteed Maturity Sum Assured along with Loyalty Addition, if any, shall be payable.

    iii) Loyalty Addition: Depending upon the Corporation�s experience the policy will be eligible for Loyalty Addition on date of maturity at such rate and on such terms as may be declared by the Corporation.

    raj

    In Reply to Jerry Jose 8 years ago

    guaranteed returns is less for elders because of high mortality charges. The remaining investment portion will give similar returns for all ages and hence it acts like fixed deposits + insurance component

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