For a long time, life insurance in India was mainly about endowment plans. That is true even today, but individuals also have ULIPs (unit linked insurance plans) to choose from. Nonetheless for many conservative individuals, endowment plans are still the preferred insurance route.
And some of the most sought-after endowment plans belong to the LIC (Life Insurance Corporation) stable. In this note we have analysed Jeevan Anand, one of LIC's most popular endowment plans
Traditionally, the psyche of the Indian insurance seeker has been such that they have been averse to term insurance plans. Term plans require regular premium payments to be made throughout the tenure of the policy; the sum assured is paid only upon the unfortunate death of the policy holder during the policy tenure. If the policy holder survives the tenure, he is paid nothing; in other words, there are no survival benefits.
The absence of survival benefits makes these plans rather unpopular among policy holders, as they like to receive a return as a reward for investing. They fail to appreciate that insurance is about 'insuring' and not 'investing', so typically there should not be any expectations of a return. A mediclaim policy or car insurance or home insurance or factory/warehouse insurance doesn't offer returns. Similarly, there are no returns from a term plan.
To worsen matters, insurance advisors weren't interested in educating insurance seekers about why term plans are a must-have for every individual regardless of age.
This gave a fillip to endowment plans not only because they pay the sum assured on the unfortunate death of the policy holder during the policy term, but also because they pay a survival benefit if the policy holder survives the term. To quote an insurance advisor's favourite cliché -- a win-win situation for the policy holder.
Jeevan Anand, given the 'LIC tag', has always been among the preferred endowment plans. It provides financial protection against the death of the policy holder, throughout his lifetime.
Policies that pay the sum assured on the death of the insured, whenever it may occur, (i.e. there is no fixed term) are known as Whole Life Policies. Jeevan Anand also provides a survival benefit to the policy holder in the form of a lump sum payment at the end of a pre-determined term, i.e. it incorporates the benefits of an endowment policy as well. So it combines the benefits of a whole life policy and an endowment policy.
The policy offers the flexibility that is typically offered by all insurance policies in terms of premium payment. Premiums are payable yearly, half-yearly, quarterly, monthly or through salary deductions. Indicative premiums for a non-smoker male, for a sum assured of Rs 100,000 and policy tenure of 25 years are as follows:
Premium payments for Jeevan Anand
| Age (Yrs) | Annual Premium (Rs) |
| 20 | 4,089 |
| 25 | 4,200 |
| 30 | 4,346 |
| 35 | 4,535 |
| 40 | 4,772 |
| 45 | 5,063 |
| 50 | 5,432 |
Some of the key features of the policy are:
1. Being an endowment plan, the policy holder gets a return in the form of an annual bonus. The bonus, once declared, is a part of the guaranteed benefits. An additional final bonus may also be provided, if the policy has run for a certain minimum period. It must be noted that the returns are not assured; they are related to the performance of Jeevan Anand's investment portfolio.
2. The sum assured along with the vested bonuses is payable in lump sum upon death during the selected term or upon survival at the end of the term. In case of survival, an additional sum assured is payable on death thereafter. This feature is commonly known as 'double sum assured'.
3. In case of death by accident (subject to an age limit of 70 years), the policy holder can get an additional sum assured upto Rs 500,000. In case of permanent disability of the policy holder (due to accident), the additional sum assured is payable in instalments.
4. The policy may be surrendered after it has been in existence for at least 3 years. The guaranteed surrender value is 30% of the basic premiums paid excluding the first year's premium. Any extra premium(s) paid and premium(s) towards 'accident benefit' are also excluded.
5. In terms of premium payments, this policy turns out to be more expensive vis-à-vis other plain vanilla endowment plans due to the provision of payment of a lump sum amount not only on survival of the policy tenure, but upon death thereafter as well. Plus there is an accidental death benefit. Obviously these features are attractive, but there is a 'price' to it all by way of higher premiums.
Most of the other features and benefits of this policy are similar to those of the other endowment policies on offer.
Our view on Jeevan Anand
1. Regardless of whether individuals opt for Jeevan Anand or not, they must first have a term plan to cover their human life value.
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2. There is little doubt that the policy offers some interesting features, but these do not come for free, policy holders have to pay for the same by way of higher premiums. So policy holders, who do not necessarily need these features, can opt for a plain vanilla endowment plan.
3. Individuals, who are already over-invested in debt (through debt funds, fixed deposits, Public Provident Fund, among other investments) and are contemplating investing in the policy, should evaluate whether they wish to add another debt product to their portfolios. In our view, if the asset allocation demands an increase in the equity allocation rather than the debt allocation, they would be better off giving the policy a miss or buying it for a smaller sum assured.
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At Personalfn, we have always maintained that a financial planner/advisor has a vital role to play in aiding individuals achieve their financial goals and objectives. Insurance plays a vital role in the financial planning exercise.
Individuals would do well to consult their insurance advisor to determine the suitability of any insurance plan and then make an investment decision.
By Personalfn.com, a financial planning initiative. It can be reached at info@personalfn.com. Personalfn.com also publishes a free-to-download financial planning guide, Money Simplified. To get a copy of the latest issue -- Real Estate & You - please click here.
