LIC bonus rates for the year 2017-18 have been recently announced by the Life Insurance Corporation of India. These latest LIC bonus rates 2017- – 2018 are applicable for the valuation period from 1st April, 2016 to 31st March, 2017.
The Investment Returns on traditional life insurance policies like Money-back or Endowment are mostly dependent on the bonus rates declared by LIC. So, it is very important to track the Bonus rates of the LIC Policies that you have bought (if any).
All insurance plans of LIC with the suffix ‘With Profits‘ are eligible for allocation of annual reversionary bonuses. When the bonuses are allocated they become vested with the policy and are payable on maturity or on death of the assured during the term of the policy.
These new bonus rates are applicable on policies which are in-force as on 31-03-2017 and also applicable to all LIC policies where death claims or maturity claims have to be paid (or) surrendered on or after 1st January, 2018.
The rate of bonus allocated on your LIC policy depends upon:
- The Plan and Term of the policy.
- LIC’s Investment experience and the surpluses generated during the year.
- Bonus declared is always based on Sum assured and not on the premium amount.
Latest LIC Bonus Rates 2017 – 2018
The bonus rates of almost all LIC plans have been kept unchanged. Below are the bonus rates of the old LIC plans ;
LIC’s Bonus Rates list for New LIC plans 2015-17
Below are the new bonus rates for the newly launched LIC plans (plans that were launched during 2015-17) ;
Below are the latest LIC Bonus rates for the plans which are open for sale, but launched before 2015 ;
How to read the above tables? How to calculate the bonus amount on my LIC policy?
In the above table, on “New Jeevan Anand” 15 years plan – LIC has declared Rs 41 per Rs 1000 Sum Assured. If you had bought a similar plan for a Sum Assured of Rs 5,00,000 then the bonus amount on your policy would be Rs 20,500 ((SA/1000)*41). Like this, every year LIC declares bonus rates. But, the rates can vary. Remember, these bonus amounts are not paid to you immediately. They are accrued and paid on maturity or claim.
If you observe that the minimum bonus amount per Rs 1000 sum assured on new plans is Rs 37 and the maximum being Rs 51. The returns are pretty low. It is better to avoid investing in these kind of low-yielding Traditional plans (of any life insurance company’s) for long-term.
Why Traditional Life Insurance Plan can be a bad Investment?
- High Cost of Insurance & Low Life cover : The premium rates on Traditional plans are much higher than the term insurance plans. If you are buying an Endowment plan or money-back policy for life cover then kindly note that you are paying a very high premium for a low life cover.
- Low Investment Returns :
- The conventional plans can be of two types – i) Participating Insurance plans & ii) Non-participating insurance plans.
- In case of Participating plans, the investment returns are primarily dependent on the bonuses declared over the Policy term by the life insurance company.
- In case of Non-participating traditional plans, the death and maturity benefits are clearly mentioned upfront. That means a policyholder knows what he/she is going to get at maturity or on death.
- In both the cases, most of the traditional life insurance plans offer investment returns of around 3 to 6%.
- So, in terms of life cover you pay high premium & you get low life cover and at the same time in terms of Returns too, you get a meager return on maturity.
- Percentage of Returns are not guaranteed : The plans which fall under the category of ‘Participating plans’ the percentage of returns are not guaranteed. The rate of bonuses declared by a life insurance company can vary from year to year. The product brochures clearly state that the rate of return is for illustration purposes only. So, kindly be aware of this point.
- Terms & Conditions on Bonuses : Bonuses like Loyalty addition or Final additional bonus may or may not be applicable on all traditional plans. They can be applicable based on the quantum of sum assured and/or policy term.
- No Compounding effect : The bonus (simple reversionary bonus) declared by most of the Endowment plans or Money-back plans doesn’t compound itself. For example, let’s say your life insurance company declares bonus of Rs 40 per 1000 of sum assured for two consecutive years. If you have invested in an Endowment plan of sum assured Rs 1 Lakh, after 2 policy years you will receive a bonus of Rs 8,000 (Rs 4,000 + Rs 4,000). This Rs 8,000 would remain as Rs 8,000 till the maturity of the endowment policy. It is just accrued and compounding does not come into the picture.
- High Penalty : If you decide to surrender a traditional life insurance plan in the initial years, you will end up paying a hefty penalty. You can surrender the policy for cash only after the premiums have been paid for at least three policy years. (Read : ‘When your tax benefits can be cancelled & revoked?‘)
- Tax saving is an additional benefit : Insurance is primarily for Protection and not for saving Taxes. Kindly note that Tax saving is an additional benefit, that’s it!
- Erosion of wealth – Life insurance policies are long-term contracts. When you are investing for long-term, would you like to get decent inflation adjusted returns or not? Your endowment or money-back plans are low-yielding investments. these may give you negative inflation adjusted returns.
Kindly go through below related articles;
- Why it is prudent to avoid investing in Bank Fixed Deposits or Traditional plans for long-term?‘
- Term insurance Vs Endowment Plans
Besides Simple Reversionary Bonus, LIC also declares other types of bonuses like;
- Final Additional Bonus (FAB) : It’s paid to those policies which are of a longer duration and has run for say more than 15 years. This is a one-time payment.
- Loyalty Additions : These are similar to FAB.
- Guaranteed Additions : The Guaranteed Additions are payable along with the Basic Sum Assured at the time of claim.
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net) (Post published on 24-August-2017)
(I will soon try to provide details on LIC Loyalty Addition rates 2017-18 & Final Additional Bonus rates for 2017-18. The above details are based on limited available information and can be modified.)