Should you buy LIC's Jeevan Vaibhav?

LIC’s Jeevan Vaibhav is a close-ended single premium endowment assurance plan which offers guaranteed benefits on death and maturity along with Loyalty Addition, if any, payable in the last policy year. The plan is  opened for sale for a maximum period of 120 days.On death during the policy term, excluding last policy year,  Sum Assured shall be payable.

 

On death or on maturity during last policy year, Sum Assured along with loyalty addition shall be payable. The loyalty addition will be decided by the corporation. But the illustration provided by the company has shown a loyalty addition of Rs 25,000/- for sum assured of Rs 2,00,000/-

Basic features

a.   The minimum entry age is 8 years and max is 65 years.

b.   The minimum sum assured is Rs 2,00,000/- and there is no limit on the max sum assured.

c.   The minimum single  premium Rs 95,210/- for sum assured of  Rs 2,00,000/-

d.   Policy term is for 10 years, but the policy can be surrendered after 1 year.

e.   The minimum Guaranteed Surrender Value allowable is equal to 90% of the Single premium paid. Corporation may however pay Special Surrender value as applicable on the date of surrender provided the same is higher than the guaranteed Surrender Value.The Special Surrender Value will be the discounted value of the Sum Assured as on date of surrender.

f.    Loan facility will be available after completion of one policy year. 

Rebate on higher sum assured

Rebate on higher sum assured will be as follows:

Sum Assured

Rebate (INR)

Up to Rs 3,90,000

Nil

Rs 4 lakhs to Rs 5.9 lakhs

2.00%

Rs 6 lakhs and above

3.00%

Benefit Illustration

LIC’s Jeevan Vaibhav

Age at entry: 35

Policy Term: 10 years

Mode of premium payment

Amount of single premium: Rs 95,730/-

Basic Sum assured: Rs 2,00,000/-

Year

Total prem. paid till end of year

Amount payable on death during the year or at maturity

Guaranteed

Variable

Total

Scenario 1

Scenario 2

Scenario 1

Scenario 2

1

95730

200000

0

0

200000

200000

2

95730

200000

0

0

200000

200000

3

95730

200000

0

0

200000

200000

4

95730

200000

0

0

200000

200000

5

95730

200000

0

0

200000

200000

6

95730

200000

0

0

200000

200000

7

95730

200000

0

0

200000

200000

8

95730

200000

0

0

200000

200000

9

95730

200000

0

0

200000

200000

10

95730

200000

0

25000

200000

225000

* The single premium shown above is exclusive of service tax.

Expected Return from  Jeevan Vaibhav

(Service tax @ 3.09% )

Age 30                  (Amt in INR)

Age 40                 (Amt in INR)

Sum Assured

200,000

500,000

1,000,000

Sum Assured

200,000

500,000

1,000,000

 

Premium

 

98,502

2,41,331

      4,77,737

 

Premium

      99,080

  2,42,746

    4,80,537

Benefit

Scenario 1

 

200,000

   500,000

   1,000,000

Benefit

Scenario 1

   2,00,000

  5,00,000

 10,00,000

Return

(Pre tax)

 

7.34%

7.56%

7.67%

Return

(Pre tax)

7.28%

7.49%

7.60%

Benefit

Scenario 2

 

225,000

   562,500

   11,25,000

Benefit

Scenario 2

   2,25,000

  5,62,500

 11,25,000

Return

(Pre tax)

 

8.61%

8.83%

8.94%

Return

(Pre tax)

8.55%

8.77%

8.88%

Risks in  Jeevan Vaibhav plan

Low Life Cover: The life cover is hardly two times the premium which is very low.

Taxation risk:  In the recent Finance bill, it has been proposed that the Sum Assured should be atleast 10 times the annual premium so as to be eligible for exemption under Section 80C income tax  and exemption of maturity benefit under Section 10(10D). But there is no clarity on single premium.

However 10% of the Sum assured can be taken for 80 C deduction but the maturity benefit will be taxable as per applicable tax slab. Hence from income tax point of view , Jeevan Vaibhav isdisadvantageous.

Inflation risk: As may be observed, Jeevan Vaibhav  is providing return between 7-9% and the real return may be negative after factoring inflation.

Single premium risk: The fund can not take advantage of market volatility since the premium collected will be invested at the beginning.

Risk appetite: As per the investment regulations of the IRDA, the funds will be mostly invested in Govt Securities and AA and above rated securities. Since the investment horizon is 10 years, equity market may generate higher return and the product is not suitable for investors willing to take higher risk.

 

Before going for any type of financial investments, one should consul fee-only certified financial planner first. The planner will perform risk profiling exercise which will give you a clear picture of investment & related products. Fee-only planners are independent of product sales, hence they recommends unbiased solutions which is in favor of the clients interest.

Last modified on Friday, 16 August 2013 12:41

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

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