 "LIC's new plan offers no new benefits")
If you are planning your tax-saving investments now, Life Insurance Corporation of India (LIC) has launched a new limited premium paying, non-linked, with-profits endowment plan called Jeevan Labh. The plan is being sold on the basis of the limited premium paying feature. So, although premium is paid for a limited period, policyholders can enjoy life cover for the entire term of the policy.
If this seems like a good feature, then remember that typically returns from endowment plans are not very high. And neither do they offer high life cover. So, it is advisable to take a separate term insurance plan and invest in tax-efficient instruments like public provident fund or tax saving equity mutual funds.
The plan is available from policy term of 16, 21 and 25 years with premium paying term of 10, 15 and 16 years respectively. The maximum age at maturity is 75 years. The minimum basic sum assured is Rs 2 lakh, while there is no limit on the maximum.
On maturity of the policy and the policy holder surviving to the end of the policy term, basic sum assured along with vested simple reversionary bonuses and final additional bonus, if any, shall be payable.
The press release issued by LIC says, "The highlight of the plan is that premium is payable for limited period and risk is covered for the whole policy term. The plan is suited to those who want premium commitment for short duration having life coverage and benefits for a longer period."
Deepak Yohanan, founder, Myinsuranceclub.com says that this feature may appeal to buyers. "It is easy to convince buyers in the tax-saving period because many people are reluctant to pay premia for a longer period. Most insurance companies launch new plans in the last quarter of the financial year to cater to tax-saving needs,'' he says.
On payment of higher premium the plan also offers two riders, as an option. These are the Accidental Death and Disability Benefit Rider and New Term Assurance Rider. The riders offer an additional sum assured, apart from the basic sum assured, in case the policyholder dies during the policy term. But there are limits with regard to the sum assured for the both riders.
This is because the premium for the riders is lower than that for the basic sum assured. So, it can become a moral hazard in case the policyholder does not have a high income, points out A S Narayanan of Reach Ajcon Financial Advisors.
"The policy offers guaranteed returns, but the returns are minimal. For someone who is in the higher age-bracket, due to high mortality rates, the returns will be low. But even for someone in the age of 25-30 years returns are in the range of 4-5%. It is better to go for a combination of pure term plan plus mutual funds," he says.
In case of equity mutual funds returns are completely tax-free after one year while in case of debt funds too tax is negligible after three years.
The additional premium for the riders will be based on the age of the policy holder and the policy term, says S. Sridharan, Head of Financial Planning, FundsIndia.com.
"Since it is a participating plan, benefits will depend on the company's performance. But usually endowment plans do not offer more than 5% returns. We advice PPF or bank fixed deposit for risk averse investors and equity mutual funds if you are willing to take some risk," he says.
