LIC Jeevan Shiromani – New Moneyback Plan | Features, Review & Returns Calculation

LIC is proposing to launch its new MONEY-BACK plan called LIC Jeevan Shiromani (Plan no.847) on 19th December, 2017. Jeevan Shiromani is a Non linked, Money back, Limited premium payment with guaranteed additions plan. This plan is specifically designed for HNIs (High Net-worth Individuals).

What are Money-back policies? – They provides life coverage during the term of the policy and the maturity benefits are paid in installments by way of Survival Benefits (money-back payments).

What are Limited Premium Payment Insurance Plans? – A limited premium payment plan is a plan where you pay the premium for a shorter span of time and enjoy the benefits of an insurance cover for a long time.

Basic Features of LIC Jeevan Shiromani Plan

Below are the eligibility conditions for Jeevan Shiromani Policy ;

• Minimum Age at entry : 18 years
• Maximum age at entry : 55 years
• Minimum basic sum assured (BSA) : 1 crore
• Maximum basic sum assured (BSA) : No Limit
• Policy term and premium paying term :
  • For a 14 year Policy -> PPT is 10 years
  • 16 year Policy -> PPT is 12 years
  • For a 18 year Policy -> PPT is 14 years
  • For a 20 year Policy -> PPT is 16 years
• Guaranteed Additions under Jeevan Shiromani ;
  • Guaranteed Addition for first 5 policy years is Rs 50 per Rs 1,000
  • From 6th Year onwards, GA is Rs 55 per Rs 1,000.
• In-built Critical Illness Benefit :
  • Jeevan Shiromani plan has an inbuilt Critical illness benefit. 
  • 15 Critical illnesses are covered in this plan.
  • 10% BSA is Payable on Diagnosis of Critical Illness.
  • Premiums will be Deferred for 2 years without any interest. 
• Settlement option for the death benefit and survival benefit available.
  • The policyholder can receive the settlement amount, it can be either death, survival benefit (or) maturity benefit, in installments over the chosen periods like 5 years, 10 years or 15 years (or) in the form of one-time lump sum payment.

Benefits under LIC’s new Jeevan Shiromani Plan

Below are the benefits under Jeevan Shiromani Money-back plan;

• Death Benefit : Under this new plan, the risk commences immediately on issuance of Policy.
  • If the insured dies within 5 years : Sum assured (SA) + Guaranteed Addition (GA) is payable to the nominee.
  • If the insured dies after 5 years : Sum assured (SA) + Guaranteed Addition (GA) + Loyalty Addition (LA) is payable to the nominee.
  • Meaning of “Sum Assured on Death” is defined as HIGHER of the below.
    • 10 times of your annual premium (excluding taxes, the extra amount due to underwriter decisions or rider premium).
    • 125% of Basic Sum Assured.
    • 105% of all the premiums paid as on date of death.
• Survial Benefits (or) Money-back options under Jeevan Shiromani;
  • For 14 year Policy : 30% of Sum-assured is payable in 10th & 12th policy year and the remaining 40% is payable in the 14th year.
  • For a 16 year policy : 35% of SA in 12th & 14th year and the remaining 30% is payable in the 16th years
  • Under 18 year policy : 40% of SA in 14th & 16th year and the remaining 20% of SA is payable in the 18th year.
  • For a 20 year policy : 45% of SA in 16th & 18th year and the remaining 10% of SA is payable in the 20th year.
• Maturity Benefit : After completion of the policy term, the remaining sum assured (Sum Assured excluding survival benefits already paid) along with Guaranteed Additions and Loyalty Additions (kindly note that Loyalty Additions are payable after five policy years only) is payable to the life assured.

LIC Jeevan Shiromani – Graphical Illustration

Below is the graphical illustration of Jeevan Shiromani Plan (20 year term).

• For a 20 year policy, the Premium paying term would be 16 years.
• 1st Survival benefit of 45% of Basic Sum Assured is payable in 16th year and 2nd SB in 18th year.
• Guaranteed Additions at the rate of Rs 50 p.a. per Rs 1,000 Sum Assured is payable for the first five policy years. Form 6th year till 20th year, GA @ Rs 55 p.a. per Rs 1,000 SA is payable on maturity/death of the policyholder.
• If death occurs during the first five years, death benefit of Sum assured on death + accrued Guaranteed Additions is payable to the nominee. In case, death occurs after 5 years, death benefit = SA + GA + Loyalty Addition is payable.
• After 20 years, the maturity benefit would be equal to 10% of BSA + accrued GAs + LA is payable.

LIC’s New Moneyback Jeevan Shiromani Plan – Returns Calculation

Let’s calculate the IRR (Internal Rate of Return) of a 20 year Jeevan Shiromani policy.

• The applicable premium rate for a 30 year male is around Rs 7,24,551 for Basic Sum Assured of Rs 1 crore.
• The Survival Benefit of Rs 45 Lakh is payable in 16th and 18th year. The 3rd SB of 10% BSA is payable on maturity.
• The total accrued amount in the form of Guaranteed Additions on maturity would be around Rs 1.075 cr.
• I believe that we can assume Loyalty additions in the range of Rs 200 to Rs 400 per Rs 1,000 Sum assured.
• In case, we take LA rate as Rs 400, the LA amount on maturity is around Rs 40 Lakh, payable at the end of 20th year.
• So, Maturity benefit is equal to Rs 1,57,50,000 and the return on investment is around 6.7%.
• If we consider LA at the lower end i.e., Rs 200, the IRR falls to around 5.26%.

 My opinion

• High Sum Assured & High Cost plan : The minimum Basic Sum Assured under this plan is Rs 1 crore. The premium rate to get Rs 1 crore for a 30 year male is Rs 7.24 lakh per annum. So, the main target clients for this plan is going to be High Net-worth Individuals only.
• No Compounding Factor : Kindly note that the Guaranteed Additions are not paid to you immediately. They are accrued and paid on maturity or death claim only. Compounding is not done.
• Loyalty Additions : Do note that LA is not applicable if death happens during the first 5 policy years. Also, the GA rate is Rs 50 per Rs 1000 SA in the first five years of policy term.
• Return on Investment : Under this plan, the returns are mainly dependent on the LA amount. I have noticed that even  most of the LIC agents have no clarity on the LA rates. As this plan has Guaranteed Additions, I strongly believe that LIC may declare lower LA rates. If we consider LA of Rs 50 per Rs 1,000 sum assured the return on investment can be around 4.62%. In case, we assume LA of Rs 400 then RoI comes around 6%. In any case, it is clear that returns can be in the range of 5% to 6%.
• Tax benefit under Section 80c : I believe that most of the HNIs might have adequate investments in their kitty, to claim tax deductions of up to Rs 1.5 Lakh u/s 80c. Also, the premium under this plan is going to be more than the limit of Rs 1.5 Lakh. So, the entire premium amount can not be claimed as tax deduction.
• What do you expect from your Life Insurance plan?
  • Adequate Life cover : If your priority is to get adequate life cover at cheaper premium rates then you can buy a Term insurance plan. A 30 year policy holder (non-smoker) can buy an e-Term insurance policy from LIC itself with a life cover of Rs 50 Lakh by paying a premium of Rs 7,812 p.a. for 30 years. (Read : ‘Best Term Life Insurance plans‘)
  • High Investment Returns: As an HNI, if you can afford to take risk and would like to multiply your wealth then there are plethora of other investment options. If you would like to invest in this plan for decent Returns then you may be up for a disappointment.
• Are you content with 6% returns? – In case, you are an HNI with adequate Life cover, believe that you have enough exposure to risk-oriented investment products and content with returns of around 4 to 6% over a period of say 15 to 20 years then you can consider investing in Jeevan Shiromani plan.

Continue reading :

• LIC New Plans 2019-2020 | Features, Snapshot & Review of all the Plans
• How to link Aadhaar to LIC policies online/offline?
• Traditional Life Insurance plan – a terrible Investment option?

The above details are based on the limited available information with us. If required, the details provided in this post will be modified.

(Post published on : 16-December-2017)