We all know that Term Insurance is a pure and cheapest form of Insurance available in the current scenario. We also know that Insurance Agents are not very keen of selling the pure Term Insurance Plan because this plans are very cheap, do not give higher commissions as compared to other insurance plans like ULIP and the main big point stressed by them for not selling is term plan does not provide any amount at the time of maturity if policy holder survives the full policy term. So then what an insurance agent do when a person asks him that he wants to buy a pure term insurance? Insurance agent if is a representative of LIC then he will suggest as a JEEVAN SARAL policy by saying that JEEVAN SARAL policy is a combination of Term Insurance, ULIPs and Savings benefits. So let us understand what is this all about.
The basic of investment is to start early and to stay consistent. Every small but periodic investment turns into a large corpus over a time with the power of compounding and grow a large lump sum at the maturity. The example could be a recurring deposit scheme of what is called as RD offered by banks. JEEVAN SARAL in other terms is a nothing but an endowment assurance plan in which a policy holder has to choose the premium that he wants to invest and the mode of paying the premium. Sum assured in JEEVAN SARAL policy is 250 times the monthly premium throughout the term. For example: for a monthly premium of Rs. 1000 will cover you for a sum assured of Rs. 2,50,000 during the policy period. Insurance agent will insist on this policy by saying the high liquidity available on JEEVAN SARAL. He will then show you a hand made chart showing the returns after maturity period. The maturity period will depend upon the age of the policy holder. This is a with profit plan so you will be given a bonus what is called as Loyalty addition from 10th year onwards along with the guaranteed maturity benefits. This bonus is nothing but the terminal bonus which is shared from the profit of the company and hence it can not be estimated at the time of buying a policy.
After reading the policy details you can easily understand that JEEVAN SARAL is an investment option which can be compared with pure term insurances with savings in Recurring Deposit or Mutual Funds or savings in Public Provident Fund (PPF). There is liquidity in recurring deposit but is not giving any tax benefit whereas PPF gives tax benefit but have no liquidity option. Since JEEVAN SARAL offers both the benefits, it is necessary to compare its returns with other schemes.
Let us understand the calculations behind this whole discussion. Suppose, let say Mr. Nilesh Panchal buys JEEVAN SARAL with a monthly premium of Rs.1000 for a period of 20 years. The total premium paid over the policy term is Rs. 2, 40,000 which will return a maturity amount of Rs. 2, 73, 500 plus bonus which will be announced at the rate for that corresponding year. By now we can base on historic data know that the average bonus paid by LIC is between 5-6%. Let us consider 6% loyalty addition to be paid at the end of 20th year then the total maturity amount will be Rs. 3, 48,000. Thus, the net earnings will be around Rs 1,00,000 in 20 years.
Now let say Mr. Deepak Girme opens a recurring deposit with a PSU bank for 20 years. Generally banks offers a RD term of 10 years but for our illustration we take is as 20 years in which PSU banks offers a interest of 7% per annum compounded quarterly. In this case, amount receivable after 20 years will be around Rs. 5, 21,000. Interest earned is Rs. 2,81,000 which is much higher than the JEEVAN SARAL. But we know that the returns from RD is taxable and if we consider that Mr. Deepak falls under highest tax bracket then total tax paid will be Rs. 87,000 and then the net earning would be Rs 1,94,000, which is still higher than the JEEVAN SARAL. We must note that not all individual will fall in higher tax bracket which we taken as example here.
Now let us take case of Mrs. Madhura Tikekar who invests monthly Rs. 1000 in PPF account for 20 years. With investing in PPF she enjoys tax benefit under section 80C similar to Mr. Nilesh. At the end of 20 years she will receive an amount of Rs. 5,93,000. The net earning will be Rs. 3,53,000 which will be absolutely tax free. And this earning will be much higher than Mr. Nilesh who is investing in JEEVAN SARAL.
Now the question and confusion comes about life cover. JEEVAN SARAL provides death benefit which is 250 times the monthly premium, plus return of premiums excluding extra / rider premium and first year premium, plus the loyalty addition, if any. This is not available with RD and PPF so one should go for pure-term policies which have very low premiums along with RS and PPF. If we consider above examples then for a Sum Assured of Rs. 2,50,000 would be nearly about Rs. 2000 per annum.
So to sum up, we should never combine investment with insurance. Life insurance is meant for providing the risk cover and hence looks for pure term insurance which is available at a cheap rate. Click to see the List of Term Insurance Plans available in India. You can easily find the Term or Whole Life Insurance Coverage insurance quotes online. For investments purpose there are many other products available in market such as Public Provident Fund (PPF), Recurring Deposit (RDs), Mutual Funds etc.
|Jeevan Saral||Recurring Deposit||Public Provident Fund|
|Rate of Return||No guaranteed return but loyalty addition is paid at the time of maturity/surrender, which varies every year.||7-7.5% Coumpounded Quarterly||8% Compounded Annually|
|Additional Benefit||Risk Cover to the extent of 250 times of monthly premium||Loan facility available||Loan facility available|
|Tenure||Min: 10 Years. Max: 40 Years. Subject to age of Policy Holders||Min: 1 Year, Max: 10 Years||15 Years, option to extend for any period in a block of 5 years|
|Minimum Investment||Rs. 250 ||Rs. 10 for PO RD & Rs. 50 for Bank RD||Rs. 500 |
|Maximum Investment||No Limit||No Limit||Rs. 70,000 |
|Premature withdrawal/surrender||80% of MSA (Maturity Sum Assured) after 3 yrs upto 4th year, 90% of MSA during 5th year.||Interest penalty levied, but this varies from bank to bank.||Allowed to withdraw 50% of the balance at the end of the fourth year, preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower.|
|Tax Benefit||Under Section 80C upto annual premium of Rs.100000||No Tax Benefit||Under Section 80C upto Maximum Rs. 70000|
|Interest Income||Tax Free Return||Taxable but No TDS||Tax Free Return|
|Guest Author: arvind singh tomar 27 Sep 2014|
|very thankfull for new investors|