LIC Jeevan Nidhi Policy Review

LIC Pension Plan – LIC offers various pension plans in India; each with its unique features and utility. Here we will go through one of the pension plans; LIC Jeevan Nidhi. Lets look into this LIC pension plan details and chart:

Best Pension Plan – LIC Jeevan Nidhi Details

LIC Jeevan Nidhi combines risk cover with the pension benefits. Anybody between the age of 18 and 65 years is eligible to buy this policy and the policy offers flexibility in annuities and also offers a wide range of riders to suit your requirement. Let us look at the main features of LIC Jeevan Nidhi Policy

Benefits: It is a deferred annuity plan which means you can defer the period from when you start receiving your annuity. In case of the death of the insured the beneficiary will receive the Sum assured plus bonuses. In case the insured survives the policy term he has the option of receiving one third of the total amount as a lump sum and the rest in the form of annuity. Sum Assured plus Guaranteed Additions plus Bonuses are used to generate the annuity.

An important feature in this plan is that pension can start from the age of 40

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Annuity Options: The insured has the option of choosing one of the following options to receive his/her annuity.

a) Annuity for life: As the name explains the insured is paid an annuity as long he/she is alive.

b) Annuity Guaranteed for a Certain Period: Annuity is paid for a period of 5/10/15/20 as chosen by the insured irrespective of the fact whether he/she is alive. After the period the annuity is paid for life.

c) Increasing Annuity: The annuity is paid for life and is increased by 3% every year.

d) Annuity with Return of Purchase Price on Death: The insured is paid an annuity as long as he/she lives. When the insured dies the purchase price is paid as death benefit.

e) Joint Live last Survivor Annuity: The insured gets an annuity as long as he/she is alive; after his/her death 50% of the annuity is paid to the spouse as long as he/she is alive.

Additions and Bonus: Guaranteed additions of Rs. 50 per thousand are added during the first five years of the policy. Bonus includes the loyalty bonus and the one based on the performance of the company. The percentage of the bonus varies with the company performance

Also Read: LIC Jeevan Arogya Plan

LIC Pension Plan – Jeevan Nidhi Comparison

Let us compare various scenarios and products to see if buying Jeevan Nidhi is a good financial decision.

Case A:

Ajay buys a Jeevan Nidhi policy with a onetime premium payment of Rs. 53,750 and a sum assured of Rs. 1 lakh. He survives the policy term of 25 years. The table compares the returns of a FD at 8% with two scenarios possible:

a)     company declares bonus @ 6%.

b)     company declares a bonus @ 10%

Jeevan Nidhi ( 6%) Jeevan Nidhi (10%) FD at 8%
Corpus 70000 350500 389400
Insurance 125000* 125000* Nil
Total 195000 475500 389400

*Insurance includes 100000 sum assured plus guaranteed benefit of 50 per thousand Sum Assured which will be added during first five policy years.

Case B:

Ajay buys the policy for 25 years; rest of the conditions are same as Case A; however he survives only five years. 

Jeevan Nidhi ( 6%) Jeevan Nidhi (10%) FD at 8%
Corpus Nil*1 Nil*1 80000
Insurance 120000 120000 Nil
Total 120000 120000 80000

*1The bonus starts accumulating after five years so there is no addition for the first five years.

* Insurance includes 100000 sum assured plus guaranteed benefit of 50 per thousand Sum Assured which will be added during first five policy years.

Case C:

Ajay buys a policy at Rs. 4121 premium per year for a sum assured of Rs. 1 lakh. The policy period is 15 years and he survives the term. The table compares the policy @ 6% bonus and 10% with MF at 18%. (approximate returns of MFs in the last decade).

Jeevan Nidhi ( 6%) Jeevan Nidhi (10%) MF at 18%
Corpus 23000 73000 251000
Insurance 125000* 125000* Nil
Total 148000 198000 251000

 

What the Tables Reveal:

ü  FD is one of the lowest risk and return investment option; it clearly outperforms the Jeevan Nidhi policy (Case A) if the company declares bonus @ 6% however in case the bonus is @10% then the policy returns are 22% higher than the FD.

ü  Case B the policy proves to be a better option due to the guaranteed benefits and the insurance amount. In the short run the benefits of compounding are less visible so it is a clear winner over the FD.

ü  In Case C we see that investing in a Mutual Fund each year would give Ajay a bigger corpus to plan for his retirement regardless of what percentage the company declares bonus

So What Should Ajay Do?

ü  Two things are important here one is that numbers reveal only one aspect of the picture and two the purpose of insurance and investing should not be confused.

ü  Another important aspect that cannot be overlooked is that the premiums are exempt under Section 80CCC of Income Tax Act which means that the actual returns are higher after considering the tax implications.

ü  Clearly Mutual Funds give a much higher return but also have a higher risk potential; Ajay can invest in MFs considering his risk appetite but with a long term view in mind.

ü  MFs are an investment option and cannot substitute the insurance needs; insurance protects the dependants from financial instability. So insurance is must for every earning individual. Keeping in mind various individual factors the most suitable insurance policy should be chosen.

ü  In case B we clearly see the benefits having an insurance policy and not just an investment; the family receives a much bigger corpus; 50% higher then what an FD would give.

ü  In case Ajay invests Rs. 4121 regularly for five years in a MF his corpus would be Rs. 29,482 while the insurance would give Rs. 120000; this is almost four times what a MF would give.

ü  In the initial years the policy is definitely a better option than other investment products where by investing a comparatively smaller amount you are able to secure the family with an accumulated corpus in case the insured dies.

ü  In later years the policy may lose out to other products; remember MFs and equity do not give a guaranteed return.

ü  LIC Jeevan Nidhi though one of the best pension plan in India and can be considered to be a part of your portfolio but cannot be the only investment for your retirement planning. You are also required to compare it with HDFC pension plan and ICICI Prudential Pension plans. The regular and fixed annuity payout can help in financial planning

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Comments

  1. Nine Million Dollars says

    We generally advise our readers to refrain from any such crap policy. Go with balanced funds and term insurance plans

    Nine Million Dollars

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