LIC Policies - Things to Know
When we talk of Insurance policies, the first thing that clicks our mind is the Life Insurance Corporation of India (LIC). You might have heard about various LIC policies with familiar sounding names - LIC Jeevan Tarang, Jeevan Saral, Jeevan Anand etc. These are policies that many of you might have in your name but interestingly many of us do not know how these policies function.
Working of LIC Policies
Many you might be having these LIC policies in your name or in the name of your family members. You might be clueless about the working of these policies and might have been clinging to them and dragging them thinking that this decision will prove to be the best decision of your financial planning. This article will take you through aspects like LIC premiums, LIC bonus etc and will give you a deeper and better understanding of these policies.
Read on to gain that extra piece of knowledge that you might have been ignorant about.
Money Back Plans and Non-Moneyback Plans
Money Back Plans are those plans of LIC that pay you on periodic basis. This means that you tend to get money at fixed intervals – 4th, 8th or 12th year of your policy and then finally after the maturity period. LIC Komal Jeevan and LIC Surabhi are examples of money back policies. You might be one of those who tend to get tempted with the idea of receiving money many times during the policy but it is more than what meets the eye. The premiums that you pay in order to own this type of policies are generally on the higher side.
Non-Moneyback Plans, as the name suggests, are those in which you are not entitled to get money at regular periods but you receive the entire sum on maturity of the policy. These plans are also referred to as Endowment Plans. Jeevan Tarang and Jeevan Anand are such endowment plans that fall under this head.
Rules Pertaining to Money Back or Endowment Policies
It is important to note that the Tenure is 20 years here.
- If you plan to surrender your policy prior to three years you will get nothing in return. You are required to continue with the policy for a minimum of 3 years if you wish to get something in return of what you have invested.
- After continuing your policy for three years you will be in a position to surrender the policy and will receive some reduced amount in return. What you gain is a minimum 30% of premiums paid and this would not include the premium of first year. This is applicable in case you surrender your policy within 4th – 6th year of policy.
- Further, if you continue your policy and surrender it between 6th – 15th year then you will receive only the accrued bonus.
- If you surrender your policy anywhere after 15th year, you will be entitled to receive Final Additional Bonus (FAB).
- If you continue with your policy till 20 years then you might as well receive a Loyalty Bonus (if applicable.)
Kinds of LIC Bonuses and Additional Gains
- Simple Reversionary Bonus – When we say “Bonus”, it is “Simple Reversionary Bonus” that we are talking about. This bonus is declared at the end of every financial year and it is per thousand of the Sum Assured on annual basis. The bonus is declared in advance, however it is paid off only when your policy matures or at the death of the policy holder, whichever is earlier. This may be viewed as a good option however the catch is that the value of bonus in today’s monetary terms would have lost its value after 20 years.
You need to note that in case if you go ahead and surrender your policy you will not receive the accrued bonus. This happens so because the value calculated is a future value and you receive only a reduced amount in today’s monetary terms which comes out to be really less. You cannot ignore the fact that you get entitled to the Accrued Bonus only if you have shelled out 5 premiums from you pocket towards your policy.
- Final Additional Bonus – The final additional bonus in LIC is also referred to as FAB. This bonus is applicable to policies that are of longer duration and you get entitled to receive FAB only when your policy has completed 15 years which means that you have paid premiums towards your policy continuously for 15 years. If you hold a policy that offers to pay “Guaranteed Additions” then FAB would not be applicable.
- Guaranteed Additions – You might have come across this term while going through certain LIC policies. LIC Jeevan Shree-1 is an example of this type of policy. When LIC says Guaranteed Additions, it refers to the additional amount or assured sums that you will receive for a specific period at the beginning or at the end of some event in addition to the sum assured at the maturity. Jeevan Shree-1 offers Rs 50 per Rs 1000 Sum Assured for each completed year for the initial 5 years.
- Loyalty Additions – If you stay connected with LIC by paying premiums and continuing with the policy for a longer period then your loyalty is applauded and appreciated – the LIC pays you a Loyalty Addition. In most cases this bonus is declared at the end of the policy but in few it may be declared after completing 5 years or 10 years of the policy. For example – if we talk of Jeevan Saral, you earn this bonus once you have completed 10 years of policy. Generally, this amount is declared per thousand of sum assured but corporation’s performance also plays a key role in deciding this amount.
Surrender Value
It has been advised time and again that before signing any document it is important to go through it. Same goes when it comes to signing an insurance contract. Many of you enter an insurance contract without reading the policy document or without gaining proper insights about the scheme. Thus, something as important as Surrender Value goes unnoticed.
Surrender Value is the penalty that you pay when you opt out of any insurance contract much before the maturity period. we generally assume that opting out of any policy before maturity will at least pay us our principal amount that we have invested, if not the interest but this notion may not hold true.
I have witnessed many such cases wherein people try to opt out of their policies but what they receive in return is far less than what they had expected - not even close to what they have actually paid.
It is noteworthy that surrender value is referred to the reduced value of your future maturity. This means that if you are on the verge of receiving Rs 30K after 15 years, LIC will credit your account with the Net Present Value in today’s monetary terms if you surrender your policy before maturity. Generally, for any traditional plan the minimum surrender value is attained only when your policy has run for three years.
Paid Up Policy
There might have been a situation when your policy has turned 3 years old and you do not wish to receive your money immediately nor you wish to pay further premiums. In such a situation your policy would become paid-up from the moment you stop paying premiums but you will get your maturity amount along with accrued bonus at the time of maturity.
Mortality Charges
In the insurance industry, there are number of policies that boast of providing “Free Insurance Cover”. Trust me it is next to impossible to find something that comes your way absolutely free. There is always a price attached. Same goes with these policies. The so claimed “Free Insurance Policies” have charges for premium or charges for providing insurance attached with them. These charges are referred to as Mortality Charges. These are similar to the charges that you shell out when you buy ULIPs or Term Plans.
Loans against LIC Policy
If you wish to avail a loan against your LIC policy, you can jolly-well do this. However, the maximum loan amount that would be disbursed to you would be 90 percent of the Surrender Value of your policy. This percentage goes down to 85 percent in case of paid-up policies and includes the cash value of bonus in both cases. The rate of interest obviously varies from bank to bank.
Contributed By: Megha Sharma |
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Megha Sharma works as a guest lecturer in Delhi. She holds an MBA & Doctorate from the UPTU. With extensive knowledge and experience in various financial products, she also works as a consultant in banking & finance domains wherein she offers advice to her clients in managing personal finance. | |
- SURESH HM:i want lic to my family and my wife18-Apr-2016 04:10 PMReply
- umesh upadhey:Very important information, but is it wise decision to invest in LIC POLICY for long term?03-Dec-2015 09:05 PMReply
