LIC has launched a recent life insurance coverage product. LIC Jeevan Utsav (Plan no. 871).

On this put up, let’s break down LIC Jeevan Utsav and see the way it works.

The nice and the unhealthy factors, and the returns you’ll be able to anticipate.  And eventually, must you make investments?

LIC Jeevan Utsav (Plan 871): Non-linked, Non-Taking part Plan

Non-linked means LIC Jeevan Utsav is NOT a ULIP. It’s a conventional plan.

Non-participating plan means the returns from LIC Jeevan Utsav are assured. In different phrases, you’ll know upfront how a lot you’ll get (and when) from the plan. No confusion surrounding bonuses and so forth.

This additionally means you’ll be able to calculate XIRR (or internet returns) from this plan before you purchase the plan.

Be aware “Assured returns” doesn’t imply good returns. Will also be poor returns. That’s one thing we’ll work out later on this put up.

For extra on various kinds of life insurance coverage merchandise and how one can decide inside 2 minutes which plan you might be shopping for, confer with this put up.

LIC Jeevan Utsav (Plan 871): Salient Options

1. Non-linked and Non-participating plan
2. Restricted premium cost plan: This implies coverage time period is longer than the premium cost time period.
3. Complete Life Plan: Coverage will run till you might be alive. No idea of maturity right here. And that the loss of life profit will definitely be paid.
4. Two variants: Common Earnings Profit and Flexi Earnings Profit
5. Minimal Fundamental Sum Assured: Rs 5 lacs. No cap on most Sum Assured.
6. Assured additions through the premium cost time period.
7. So, on this plan, after the premium funds are over, you get a set quantity yearly for all times. After you go away, the nominee will get the loss of life profit.

LIC Jeevan Utsav (Plan 871): Demise Profit

Within the occasion of demise through the coverage time period, the nominee shall get:

Demise Profit = Sum Assured on Demise + Accrued Assured Additions

Sum Assured on Demise = Larger of (Fundamental Sum Assured + Accrued Assured Additions, 7 X Annualized Premium )

The loss of life profit can’t be lower than 105% of the full premiums paid.

Now, right here is spanner within the works.

Given the formulation for Sum Assured on Demise (SAD), it’s doable that the SAD could not exceed 10 X Annualized premium.

If Sum Assured on Demise doesn’t exceed (or equal) 10X Annualized premium, the maturity/survival profit won’t be exempt from tax.

Be aware that the loss of life profit will nonetheless be exempt from tax.

LIC Jeevan Utsav (Plan 871): Maturity Profit

Since this can be a complete life plan, the coverage will run till you might be alive.

Therefore, no idea of maturity profit right here. Very similar to a time period life insurance coverage plan.

However the coverage has survival advantages, as we focus on within the subsequent part.

LIC Jeevan Utsav (Plan 871): Common Earnings Variant and Flexi Earnings Variant

That is about survival advantages.

Beneath the Common Earnings variant, the policyholder will get earnings equal to 10% of the Fundamental Sum Assured yearly.  Till the coverage holder passes away.

When does the earnings begin?

As per the next desk.

The Flexi Earnings Variant isn’t too completely different. It simply presents the choice to build up these annual payouts. So, you’ll be able to select to not obtain the payout and let the cash be with LIC.

The cash that’s not withdrawn will accumulate returns (curiosity) on the fee of 5.5% p.a. till you withdraw.

You may withdraw as much as 75% of the accrued flexi profit (together with curiosity) as soon as in a coverage 12 months.

Since there may be not a lot distinction between the 2 variants, you’ll be able to change/specify the choice (common or flexi) till 6 months earlier than the beginning of the earnings profit.

LIC Jeevan Utsav (Plan 871): Assured Additions

Assured additions haven’t any position to play in calculation of survival profit.

Comes into play solely in calculation of loss of life profit.

Bear in mind Demise Profit = Sum Assured on Demise + Accrued Assured Additions

The calculation is sort of easy.

Yearly, till the top of premium cost time period, the coverage will accrue Assured additions on the fee of 40 per thousand of Fundamental Sum Assured.

So, if the fundamental Sum Assured is Rs 5 lacs and the premium cost time period is 10 years, then the coverage will accrue 40 X (5 lacs/1,000) = Rs 20,000 price of assured additions.

Be aware that these assured additions will accrue solely through the premium cost time period. As soon as the premium cost time period ends, no additional assured additions will accrue.

And this accrued quantity might be paid together with Fundamental Sum Assured might be paid to the nominee when the coverage holder expires.

LIC Jeevan Utsav (Plan 871): What are the returns like?

A very good half about LIC Jeevan Utsav is you could calculate the XIRR (internet return) from this plan earlier than you make investments.

The one assumption you must make is longevity. How lengthy will you reside?

Why? As a result of the plan ends solely on demise of the policyholder.

For returns calculation, let’s assume that age of demise to be 90 years.

I copy the indicative premiums for Fundamental Sum Assured of Rs 5 lacs for various ages and premium cost phrases.

You’ll straightaway see a difficulty.

Sum Assured on Demise = Larger of (Fundamental Sum Assured, 7X Annualized premium).

For the reason that Fundamental Sum Assured is Rs 5 lacs, the minimal loss of life profit (Sum Assured on Demise) is lower than 10X Annualized premium for sections spotlight in RED.

In these circumstances, the survival profit might be taxable.

Therefore, with shorter premium cost phrases, you might face this tax downside.

If you’re on this plan, do contemplate this facet and select premium cost time period accordingly. Moreover, the Union Price range 2023 made maturity/survival profit from conventional plans with cumulative annual premium exceeding Rs 5 lacs taxable.  Take into account this facet too.

A 30-year-old particular person buys 12-year premium cost time period plan with Fundamental Sum Assured of Rs 5 lacs.

The premium earlier than taxes shall be Rs 44,275.

The primary-year premium incl. of 4.5% GST shall be Rs 46,267.

The premium within the subsequent years incl. of two.25% GST shall be Rs 45,271.

Survival profit

From the top of the top of 15^th coverage 12 months, he’ll get 10% X 5 lacs = Rs 50,000 each year.

Since we now have assumed demise age to be 90 years, this cost will proceed for 90 – (30 + 15) +1 = 46 years.

Demise Profit

Assured additions will accrue on the fee of 40 * 5 lacs/1000 = Rs 20,000 each year for 12 years.

That makes it Rs 2.4 lacs.

Demise Profit = Fundamental Sum Assured + Accrued Assured Additions = Rs 5 lacs + 2.4 lacs = Rs 7.4 lacs

The XIRR for such an funding shall be 5.60% p.a. For demise on the age of 90 years.

If the demise occurs on the age of 80 years, the XIRR shall be 5.55%.

You have to resolve if this can be a adequate return for you.

Be aware: For this very particular case, because the Sum Assured on Demise (Rs 5 lacs) is greater than 10X annualized premium, the survival profit shall be exempt from tax.

LIC Jeevan Utsav (Plan no. 871): Must you make investments?

I’m not allowed to offer Black-and-white solutions.

Moreover, I’ve moved away from optimizing investments an excessive amount of. Now, I’ve grown to be OK with common investments that permit me to sleep peacefully.  And you’ll have noticed this in my writings too.

As buyers, we could have completely different expectations from an funding product. For example, I’ll desire an funding with doubtlessly increased returns (and better danger) however you might be comfy with common however secure returns.

In spite of everything, private finance is extra private than finance.

Let’s take a look at the nice factors.

A easy product.

From an investor’s viewpoint, this product is simple to know and relate to. I pay Rs X each year for the subsequent 5-16 years. Thereafter, I get Rs Y each year for all times. Then, after demise, the household will get some quantity.

Assured. No scope for confusion. Very straightforward to know.

Whether or not I like this product or not OR whether or not the returns are good or unhealthy, these merchandise normally discover enchantment amongst many buyers.

I can say this confidently as a result of my shoppers ask me this query very often.

I’ve this behavior of making an attempt to optimize issues and suggesting complicated options (not essentially good). Nicely, you will have free will.

The Not-so-good factors

Traditional lack of flexibility. You may’t get up at some point and resolve to exit this funding. You received’t get a lot of your funding again for those who exit pre-maturely.

The returns, regardless that assured, appear sub-par for a long-term funding. However that’s simply me. Your priorities/expectations could also be completely different.

A number of factors you need to contemplate

If you’re on this product, don’t ignore the tax angle.

As mentioned earlier on this put up, not all premium and premium cost time period mixture could meet the criterion for tax exemption (Minimal Demise Profit >= 10 X Annual Premium). Hold this facet in thoughts.

Within the instance I’ve thought-about, the survival profit is exempt from tax as a result of it meets the criterion. To your case and most well-liked mixture, that will not be the case.

The tax remedy can severely have an effect on your post-tax returns.

The returns from conventional plans additionally rely in your age. Each else being the identical, returns go down with entry age. I confirmed the returns for a 30-year-old. Your age could also be completely different.

The nice half is you could calculate your XIRR upfront (earlier than even buying the product). And resolve whether or not the returns are adequate for you.

Moreover, don’t forget concerning the tax change that occurred earlier this 12 months about tax remedy of conventional plans. For the standard plans purchased after March 31, 2023, if the cumulative annual premium exceeds Rs 5 lacs, the maturity/survival profit proceeds from such plans might be taxable.

Extra Hyperlinks/Assets

LIC Jeevan Utsav Brochure and Coverage Wordings on LIC Web site

Disclaimer: Registration granted by SEBI, membership of BASL, and certification from NISM by no means assure efficiency of the middleman or present any assurance of returns to buyers. Funding in securities market is topic to market dangers. Learn all of the associated paperwork fastidiously earlier than investing.

This put up is for training goal alone and is NOT funding recommendation. This isn’t a suggestion to speculate or NOT put money into any product. The securities, devices, or indices quoted are for illustration solely and will not be recommendatory. My views could also be biased, and I’ll select to not give attention to elements that you just contemplate necessary. Your monetary targets could also be completely different. You could have a special danger profile. You could be in a special life stage than I’m in. Therefore, you need to NOT base your funding selections based mostly on my writings. There isn’t any one-size-fits-all resolution in investments. What could also be an excellent funding for sure buyers could NOT be good for others. And vice versa. Due to this fact, learn and perceive the product phrases and situations and contemplate your danger profile, necessities, and suitability earlier than investing in any funding product or following an funding method.