Lic Cuts Returns On Jeevan Sneha By 3%

The Life Insurance Corporation of India (LIC) has drastically cut the return on survival benefit option for Jeevan Sneha policyholders from 11 per cent to eight per cent.

Jeevan Sneha was introduced in 1997, as a 20-year policy offering periodic returns of sum assured with a facility to encash 20 per cent of the sum every five years till the term of the policy, when the balance sum assured would be payable together with the guaranteed and loyalty additions.

Alternatively, if the policyholder chooses to retain the funds with LIC, incremental survival benefit would be payable "at the rate of 11 per cent compounded yearly", stated the offer document.

Since 2002 completes five years after the introduction of the plan, policyholders could either opt to take 20 per cent of the sum assured, or choose to retain the same with LIC at the stipulated rate of interest.

Even before any policyholder can take advantage of the special benefits under the plan targeted solely for women, LIC has dropped the rate of return. In a recent circular issued to the zonal offices, the Corporation has cut the interest rate for accumulation of survival benefits to eight per cent.

This means policyholders, who invested on the basis that the money retained with LIC would earn them 11 per cent interest annually against the prevalent interest rates, would now have to be content with eight per cent or look for other investment options. The revised rate too, according to LIC officials, is subject to further revision in keeping with market conditions.

LIC officials said the rate of interest was not assured on the survival benefits, and that it was subject to change. Agents, however, said they have been selling the policy assuring high rate of return if the sum is kept back with LIC.

LIC officials argued that at the time of introducing the policy in 1997, the interest rates were ruling at 13-14 per cent. Agents argue that revision in interest rates is a violation of policy conditions. LIC top officials, however, said the rate of interest was never assured.

LIC has, however, not pared the guaranteed additions at Rs 70 per Rs 1,000 sum assured for each year the premium is paid on maturity of the policy or on death of the policyholder.

The policy was closed on December 31, 2001. This was in line with the Corporation's strategy to close down guaranteed return products in view of the market conditions wherein interest rates have dropped by more than 300 basis points since the beginning of this fiscal.