LIC (Life insurance Corporation) is set to launch one more traditional policy which is Limited Payment Endowment Plan.
The main feature of this new plan is, the payment of premiums is limited to a term shorter than the policy. The maturity amount is payable at the end of the policy term, or on the death of the policy holder whichever is earlier.
Features of LIC Limited Payment Endowment Plan :
- Type of plan : Endowment plan with limited premium paying term.
- Minimum Entry Age : 18 years
- Maximum Entry Age : 62 years
- Maturity Age : 75 years ( Maturity age is, the date at which the face amount of a life insurance policy becomes payable by either death or other policy terms and conditions).
- Policy duration : Under this plan three types of durations are available – 12/16/21 years
- Premium Paying Term : 8 years (or) 9 years
- Minimum Sum Assured : Rs 3 Lakh
- Maximum Sum Assured : Not applicable
Benefits of LIC New plan – Limited Payment Endowment Plan :
- Death Benefit – On death of policy holder during the policy period, his or her nominee will receive Sum Assured on Death+Accumulated Bonus and Final Additional Bonus if declared by LIC.
Sum Assured on Death will be higher of the below
(i) 10 times of annualized premium paid. (Or)
(ii) Absolute amount to be payable i.e 125% of Basic Sum Assured.
This death benefit shall not be less than 105% of all the premiums paid as on date of death.
- Survival Benefit – If policy holder survives till the end of policy term then he/she will receive Sum Assured on Maturity+Bonus+Final Additional Bonus (if declared by LIC). Here Sum Assured on Maturity is equal to Basic Sum Assured.
Optional Riders of Limited Payment Endowment Plan :
The policy holder has an option to avail two riders under this plan. These are optional riders and are available on payment of additional premium.
- Accident Death & Disability Benefit Rider – This rider can be opted for at any time within the premium paying term of the Basic Plan provided the outstanding premium paying term is at least 5 years . So for a Plan which has Premium Paying Term of 8 years, this rider can be opted anytime in the initial 3 years. For a PPT of 9 years, this rider can be opted in the initial 4 years. The benefit cover under this rider shall be available during the policy term or before the policy anniversary on which the age nearer birthday of the Life Assured is 70 years, whichever is earlier. The minimum Sum Assured offered under this rider is Rs 10,000 and maximum SA is Rs 1 crore (subject to maximum basic sum assured).
- Term Assurance Rider – You can opt for minimum Sum Assured of Rs 1 Lakh and maximum of Rs 25 Lakh under this optional rider.
This rider can be opted for at any time within the premium paying term of the Basic Plan provided the outstanding premium paying term is at least 5 years The benefit cover under this rider shall be available during the policy term or before the policy anniversary on which the age nearer birthday of the Life Assured is 70 years, whichever is earlier.
Example of a Limited Payment Endowment Plan :
Mr. Nair aged 35 years, plans to take Limited Payment Endowment Plan for the term of 12 years and the premium payment term (PPT) of 9 years. He chooses the sum assured of Rs 3 Lakh.
In this case, he is required to pay an annual premium of Rs 30,091 pa (excluding service tax) for 9 years only. After the PPT of 9 years, he will stop paying premium but the policy will continue till the policy term of 12 years.
The possible events that can happen are :
- On Death of Policy holder – If Mr Nair dies during the policy term, his nominee will receive the Sum Assured + Accrued Bonuses. After this, the policy will cease to exist.
- On Survival till maturity – If Mr. Nair survives till the end of policy term, he will get the Sum Assured + Accrued Bonuses. The policy will terminate thereafter.
As analyzed above, the returns from ‘Limited Payment Endowment Plan’ can be somewhere in the range of 5.5% to 7 %. I have mentioned this range after calculating the returns for all the possible combinations of Premium Paying Terms ( 8 or 9 years ) and Policy duration ( 12/16/21 Years).
Kindly stay away from these kind of plans if you are expecting higher Rate of Returns. Do not buy this plan just because it offers you Tax Saving benefits. There are better Tax Saving Investment options available in the market.
For example, PPF (Public Provident Fund) will give you better returns than these kind of Endowment Plans (if safety of capital and tax benefits are your priority). (You may visit my post on “ Is Term Insurance a waste of your money? Endowment Policy Vs Term insurance policy.“)
I hope this post is useful and informative. Do share your views and comments. Cheers! (You may like visiting my post on “LIC’s Limited Payment – Endowment Plan offers LIMITED RETURNS.”)