The Life Insurance Corporation of India (LIC) has announced the launch of its new term life insurance plan Jeevan Kiran (Plan no 870), which is a non-linked, non-participating life insurance policy that ‘returns’ the premiums paid by policyholders at maturity.
LIC New Term Plan Jeevan Kiran, is a traditional term life insurance plan with an added feature of ‘return of premium‘ on maturity of policy. So, you get the life cover throughout the policy tenure and on maturity date, the policyholder will get back all the premiums that he/she had paid during the policy tenure.
Return of Premium Plans are primarily for those individuals who believe that buying a ‘term life insurance plan’ is just a ‘waste of money’, as they don’t get anything in return on their investments (premium installments).
Related article : Term Insurance : Is it just a waste of your money?
In this post, let’s understand – What is a Term Life Insurance Plan? What are the features of LIC’s new plan Jeevan Kiran? How LIC New Term Plan Jeevan Kiran works? Should you buy LIC Jeevan Kiran Term Insurance policy?
What is Term Life Insurance Plan?
Term insurance is the simplest and most fundamental insurance product. These insurance plans are designed to ensure that in the event of the policyholder’s death, the family gets the sum assured (the cover amount). Term plan provides risk coverage for a certain period of time (policy term/duration). If the insured dies during the time period specified in the policy and the policy is active – or in force – then a death benefit will be paid. It is the cheapest form of Life insurance in terms of premium.
A return of premium Term Plan provides for a refund of the premiums paid on a term life insurance policy if the policyholder doesn’t die during the stated term. LIC’s Jeevan Kiran Term insurance plan falls under this category.
Features of LIC Jeevan Kiran Plan
Below are the key features of LIC’s Jeevan Kiran new term plan ;
- Life insurance coverage in case of unfortunate death.
- Return of total premiums paid, in case of survival till maturity.
- Flexibility to choose Single Premium or Regular Premium Payment mode
- Flexibility to choose the period for which protection is required (10 to 40 years).
- Option for payment of maturity benefit in instalments.
- Minimum Basic Sum Assured : Rs. 15,00,000/-
- Maximum Basic Sum Assured : No limits
- Minimum Age at Entry : 18 years
- Maximum Age at Entry : 65 years
- Minimum Age at Maturity : 28 years
- Maximum Age at Maturity: 80 years
LIC New Term Plan Jeevan Kiran – Illustration
Let’s consider an example – A 40 year old male individual buys LIC’s Jeevan Kiran Policy for Rs 50 lakh Sum Assured, with 20 year policy term, premium payable @ Rs 48,004 p.a., opts for regular premium payment for 20 years and selects ‘lump sum’ maturity benefit payment option.
In case, the policy holder expires anytime during the policy tenure (20 years), his/her nominee will receive the death benefit of Rs 50 lakhs as a lump sum amount and the policy gets closed.
In case, the policy holder survives the term then the insurance cover ceases and he/she receives the maturity benefit of Rs 9,60,080 (20 years X Premium i.e., 20 X 48,004). This maturity benefit is called as guaranteed ‘return of premium’.
On Life Assured surviving the stipulated Date of Maturity, “Sum Assured on Maturity” shall be payable, where “Sum Assured on Maturity” is equal to “Total Premiums Paid” under Regular Premium Payment policy and “Single Premium Paid” under Single Premium Payment Policy.
Do note that Total Premiums Paid” means total of all the premiums paid, excluding any extra premium, any rider premium and taxes.
Should you buy LIC’s Jeevan Kiran Term Plan?
Below are the key points to ponder over before buying LIC’s new term plan;
- ‘Return of Premium’ comes with a Cost : There is nothing ‘free’ in this world. Everything has a cost attached to it. As this plan offers you ‘the return of premium’, the quoted premiums are higher than the plain vanilla term life insurance plans (without return of premium option).
- Comparison : If you compare the premiums of LIC Jeevan Kiran with other available Return of Premium term plans, the premiums are on the higher side.
- Psychological Factor : The main reason, for policy holders choosing return of premium policies, is the perception that they are not losing any money by getting their premiums back. Most of us only tend to see the absolute amount of net cash flow paid to the insurance company without taking into account the time value of money of those cash flows.
- No Compounding Effect : The exact amounts of premiums you pay are returned by the insurance company on the maturity of the policy and these amounts do not earn any interest. Further, this premium amount is not even adjusted for inflation and excludes the taxes you paid. The premiums of Rs 9,60,080 are paid back as survival benefit. But when you take into account inflation or a discounting factor of say 6% and calculate the NPV, the actual value of cashflows is only Rs Rs 5,83,638.
|Premium on Sum Assured of Rs 50 Lakhs||Rs 48,004 (excluding GST)|
|Total Premiums paid on Regular payment mode (policy tenure 20 years)||Rs 9,60,080|
|Net Present Value (NPV)||Rs 5,83,638|
Related article : Why (NOT) to buy Return of Premium Term Life Insurance Plans?
Our Take : In our opinion, what you should do is purchase a pure term plan and cover the financial risk of your death. Invest the balance amount (Pure term premium minus return of premium policy premium) in any other financial instrument that will give you better real rate of returns.
Suggested reads :
- LIC Dhan Vriddhi Plan Review – Negative Returns?
- How to buy Term Life Insurance under Married Women’s Property Act?
- How much Term Life Insurance Cover do I need? | Online Calculator
- Life Insurance Endowment Plan Return Calculation | Do-it-yourself guide!
- Life Insurance Money back Plan Return Calculation | Do-it-yourself guide!
(Post first published on : 28-July-2023)