Last Updated on February 23, 2021 at 8:00 am
This is a review of LIC LIC Bima Jyoti, a new plan that is available from 22-Feb-2021. Let us analyse its features, merits and demerits and see if it has any value to offer and worth it. We explain why the typical returns obtained would be poor. Such launches are common during the “tax-saving season” and best avoided.
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- Financial Considerations and optimisations while buying a car;
- What you need to know before buying term Insurance;
- Used Car vs New Car: Which is a better buy?
- ICICI Pru Guaranteed Pension Plan Review: What you need to know
LIC BIMA Jyoti: LIC’s BIMA JYOTI (plan no 860; UIN – 512N339V01) is a Non-linked, Non-participating, Individual, Limited Premium Payment, Life Insurance Savings Plan. This provides Guaranteed Additions that accrue at the rate of Rs.50 per thousand Basic Sum Assured at the end of each policy year throughout the policy term. It is available for purchase online.
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We will first look at what it looks like, at face value, and then we will delve deep into what it actually is in its crux.
LIC Bima Jyoti Key Features
- Death Benefit (DB)(Minimum Sum Assured is 1,00,000)
- Death Benefit is Sum Assured on Death + Accrued Guaranteed Additions
- Sum Assured on Death is higher of:
- 125% of Basic Sum Assured,
- 7 times the annual premium
- The death benefit shall not be less than 105% of all the premiums paid till death.
- If death occurs before the commencement of risk, then all premiums excluding rider premiums are refunded.
- Guaranteed Additions (GA), which accrue at the end of each year at the rate of Rs.50 per 1000 Basic Sum Assured, throughout the Policy term.
- Maturity Benefit (upon survival)
- Maturity Benefit = Sum Assured on Maturity + accrued Guaranteed Additions.
- Where Sum Assured on Maturity is Basic Sum Assured
- This will be paid out after the end of the Policy Term.
- Policy Tem (PT): 15 and 20 Years
- Policy Payment Term (PPT): 10 and 15 years (for the PT of 15 and 20, respectively). Basically, PPT will be (PT – 5) Years.
- Optional Riders:
- Accidental Death and Disability Rider Benefit
- Accident Benefit Rider
- Term Assurance Rider
- New Critical Illness Benefit Rider
- Premium Waiver Benefit Rider.
- Loan facility
- The loan can be taken against this policy after at least 2 years of premium payment.
- The maximum loan that can be taken is 90% of Surrender Value for active policies and 80% of Surrender Value for paid-up policies.
- Receive tax benefits u/s 80C and 10(10D)
- Eligibility:
- Entry Age: Minimum 60 days, Maximum 60 Years
- Age at Maturity: Minimum 18 Years, Maximum 75 Years
Analysis by Illustrations:
Now let us analyse the policy. Let us understand the workings of this policy with an example.
Example
A policy is purchased with the following parameters.
- Age: 35 years
- Policy Term (PT): 20 years
- Premium Payment Term (PPT): 15 years
- Payment Frequency: Annual
- Annual Premium: Rs. 73275 for 1st year and Rs. 71698 for subsequent years (incl GST)
- Sum Assured on Maturity: Rs. 10,00,000
- Riders opted: None
Workings
- Total Premiums Paid = 73275 + 14*71698 = Rs. 1077047
- Guaranteed Additions (GA): Rs. 50,000 per year
- Total GA = 50,000 X PT = 50,000 X 20 = Rs. 10,00,000
- Sum Assured = 10,00,000
- Maturity Benefit = SA + GA = 10,00,000 + 10,00,000 = Rs. 20,00,000
- Death Benefit = Rs. 22,50,000
Observations All hunky-dory, right? Basically, it looks like you pay 12X amount annual premium for 15 years, and a bonus that is equivalent to 5% of the SA “accrues” for you throughout the 20 years, and then after 20 years, you get a Maturity Benefit of 20X (Almost doubling your money after a gap of 5 years after you stopped paying the premium)
LIC Bima Jyoti Return Calculation
Let us now calculate the Internal Rate of Return or IRR.
| Year | Premium | Sum Assured | Guaranteed Additions |
| 1 | -73275 | 0 | 50000 |
| 2 | -71698 | 0 | 50000 |
| 3 | -71698 | 0 | 50000 |
| 4 | -71698 | 0 | 50000 |
| 5 | -71698 | 0 | 50000 |
| 6 | -71698 | 0 | 50000 |
| 7 | -71698 | 0 | 50000 |
| 8 | -71698 | 0 | 50000 |
| 9 | -71698 | 0 | 50000 |
| 10 | -71698 | 0 | 50000 |
| 11 | -71698 | 0 | 50000 |
| 12 | -71698 | 0 | 50000 |
| 13 | -71698 | 0 | 50000 |
| 14 | -71698 | 0 | 50000 |
| 15 | -71698 | 0 | 50000 |
| 16 | 0 | 0 | 50000 |
| 17 | 0 | 0 | 50000 |
| 18 | 0 | 0 | 50000 |
| 19 | 0 | 0 | 50000 |
| 20 | 0 | 0 | 50000 |
| 21 | 2000000 | 1000000 | 1000000 |
| IRR | 4.71% |
The IRR of this policy combination is only 4.71%. Here is how you can better.
Alternative: Separate investment and insurance
Example 1
Insurance Product (Term Plan): If you want 23 lacs life cover, then it can be achieved using a Term Plan with a yearly premium of less than Rs. 3000 per year.
Alternatively, if you pay Rs. 72,000 per year premium, you may be able to get a Term Plan with Cover as high as 7 Crores (provided you have a high income).
Investment Product (PPF): If you invest Rs. 72,000 per year in PPF for 15 years and don’t invest anything for the next 5 years, then after 15 years, you will have accrued 19 lacs. After 20 years, your PPF corpus would be a whopping 28.5 lacs. Compare this to the policy which yields only 20 lacs at the end of 21 years.
Example 2
Term Plan: You pay 1000 Rs per month for a 1 Crore Sum Assured Term Plan.
PPF: You invest the remaining Rs. 5000 in PPF for 15 years. Then, by the 15th year, you will have amassed 16 lacs. By the end of 20 years, you will have a PPF corpus of 22.3 lacs.
As you can see, even with the hybrid approach of PPF + Term Plan, the PPF provides you 11.5% better corpus accumulation, not to mention the Term Plan with 1 Crore coverage.
So as a pure investment product, or pure insurance product or as a hybrid product, this plan provides sub-optimal protection and capital appreciation. We recommend that you avoid it.
Closing Thoughts: As with most endowment plans, this policy uses concepts of Start year premium payment End year payout and uses buzzwords like “Guaranteed Additions” provide a sub-optimal return of about 5 % IRR. It’s Sum Assured on Death is too low as well.
In essence, it leaves one under-invested and under-insured, thereby not only risking not reaching our financial goals but failing to provide adequate financial protection as well. A simple delineated approach of a combination of a Term Life Insurance for life cover and instruments like PPF, VPF, and other debt instruments for investment will ensure enough protection and better goal coverage.
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