Few months back when I wrote about “LIC Bonus rates for 2012-13 and comparison“, I flooded with lot of queries about doubts to calculate return on LIC policies. So thought to sum up all those issues and write an article on that.
In LIC their are basically two type of plans either With Profit Plans or Without Profit Plans. First we will look at what do you mean by without profit plans. In such plans there will be no bonus, LA or GA payable to you and on the date of maturity, only the sum assured will be paid.
Rest of all policies comes under with profit plans. Examples of few are Endowment Plan (Table-14), Money Back Plans, Jeevan Anand, Jeevan Saral, Jeevan Ankur or Komal Jeevan.
In with profit policies you get returns based on the declaration of bonus, loyalty addition or final additional bonus of LIC. So first let us understand each components of these in detail.
1) Bonus-Bonus is the return what LIC include into your policy account on yearly base. LIC usually declares bonus rate for all policies on yearly base. Note the point that, eventhough it is accumulated on yearly base but you get this return only either on maturity or on death claims. Hence dont be happy now itself that you got high bonus. Will make you familiar with bonus calculation from below example.
Suppose Mr.X take Jeevan Anand policy at the age of 30 yrs. Term of the Plan is 25 yrs and Sum Assured opted is Rs.10,00,000. So from start to maturity period he is entitled for the bonus which LIC declares. It will get paid on maturity. If something happens to him during the period of policy term then his nominee will receive Sum Assured+Accumulated bonus till that period. Calculation of bonus is as below.
Suppose if LIC declares bonus as Rs.40 for particular year then what it mean? It means that for Sum Assured of Rs.1,000 LIC will pay you Rs.40 as bonus for that particular year. Hence in above example Mr.X opted Rs.10,00,000 as Sum Assured, so he will get bonus as Rs.40,000 {(Rs.10,00,000*Rs.40)/Rs.1,000}. Now the interesting point here is, as I told above this will be included into your policy account for that particular year but will not be paid to you. Same way they calculate for each year bonus and will pay you either on maturity or on death.
Below is the list of policies which are entitled to receive bonus.
1) Whole Life Plans, 2) Endowment Plans, 3) Jeevan Mitra double and triple cover, 4) Jeevan Saathi, 5) Marriage Endowment Plans, 6) Jeevan Chhaya, 7) Jeevan Shree-1, 8) Jeevan Anurag, 9) Money Back plans etc.
2) Guaranteed Addition (GA)-In few plans bonus is guaranteed where LIC obliged to pay fixed amount of bonus till the agreed period. It is usually called as Guaranteed Addition. Few of such plans are Komal Jeevan and Jeevan Shree-1.
3) Loyalty Addition (LA)-This is one time payment which will be given to you only after completion of certain period (either maturity or death). As the name suggest, this is given to you by being loyal to LIC. So if for any particular plan LIC declares LA as Rs.250 for those all policies who completed 25 years then the calculation will be as below.
We again take Mr.X’s example, in his case he will be entitled to receive Rs.2,50,000 {(Rs.10,00,000*Rs.250)/Rs.1,000}. In all policies usually LA will be for each Rs.1,000 Sum Assured. But exception to this is Jeevan Saral, where LA will be on each Rs.1,000 Maturity Sum Assured.
This Maturity Sum Assured is differ from Sum Assured for Jeevan Saral. This Maturity Sum Assured is calculated based the age, term and premium.
4) Final Additional Bonus (FAB)-This is same as Loyalty Addition. Usually paid to policies whose term is more than 15 years. Calculation of this FAB is same as that of LA. This is calculated for each Rs.1,000 Sum Assured (Jeevan Saral not have FAB). Policies which have long term will usually have higher FAB.
These above four are the components which constitutes your return on LIC policy. But do remember that each policy have it’s own feature. Hence never believe that your policy have all the above return features. But almost all policies have either bonus or GA. LA and FAB depends on policy feature. Hope this above explainaiton made easy in calculating
In LIC their are basically two type of plans either With Profit Plans or Without Profit Plans. First we will look at what do you mean by without profit plans. These are the plans where you not get any benefit on maturity but if policy holder dies during that policy period then his nominee will get the Sum Assured he opted. Pure term plans of LIC such as Anmol Jeevan and Amulya Jeevan are such without profit plans.
Sir, if you don’t mind,Your answer is totally wrong
with profit policy means in which bonuses are declare every years ie. endowment, money back,whole life policy
and without profit policy means where guaranteed addition are given .ie. Jeevanshri,Komal Jeewan etc
Prashant-If we go with LIC wordings of differentiation then I might be wrong. But my whole intention was to diversify the policies between Insurance+Investment and pure Insurance. Keeping that in mind I wrote those lines. Do you feel wrong to say “Guaranteed Addition” plans as without profit plans? Is their no profit in such GA plans?
Dear Basu & Prashant, I think both of you have got it wrong, if you don’t mind my saying so. Under without profit plans there will be no bonus or GA payable to you and on the date of maturity, only the sum assured will be paid. Under term insurance plans nothing is payable if the insured person lives upto maturity date and such plans are called non-participating policies as they are not reckoned at the time of valuation of surplus. With-profit plans are participating policies as they participate in surplus valuation and until recently 95% of the surplus was distributed as bonus to all with-profit policyholders and 5% was being given to Govt of India as its share of surplus, for the Rs.5 crores contributed by the the Govt way back in 1956 at the time of nationalisation of LIC. This 5% is sought to be revised now to 10% and 90% of the surplus getting distributed to the policyholders. Thank you.
This may be acceptable and I am changing the wordings for the same. Thanks for sharing this.
With profit or participating plan means the policyholder will get a share or the profit. If the company makes loss no profit will be there to share. But in case of guaranteed additions even if the company is at a loss it has to pay the GA.
Sanjeev-Correct
Dear All,
just need to ur advice…
I recently bought the LIC Jeevan anand (149), with the premium of 42000 P.A. and sum assrued of Rs. 1 Lakh only.
Im quite new to these, so dont knw much, hw cn I actully calculate my bonus points and wht exactly sum assured really means.
couple of days back, I recd. a call frm LIC, mentioning on the policy there is some bonus which is being credited to your dealer and if I want to claim that I need to take another policy of this much amount… thw the call appears to me a fake one..
Ankur-Premium of Rs.42,000 PA and Sum Assured just Rs.1,00,000? Seems missing something. Can you provide the term of the policy and age at the time of policy start? LIC will never call saying bonus is credited to dealer. Yes it seems some fake call.
please send me a soft copy of LIC Circuler of Bonus Rates at my email address is sanjusonu84@yahoo.com
Sanjeev-Done
sir, what u say about jeevan saral and jeevan anand ,which is good?? according to return,
Geet-In my view both are low yielding products. If you are so fond of both products then restrict your investment to the tune of around 10% of your overall portfolio.
Hi, could you also explain me how the bonus amount for this Jeevan Saral Policy has been calculated in Scenario 1 and Scenario 2 as per the below link. It states that the calculation has been performed at 6% and 10% respectively. But I don’t get that. http://www.licindia.in/endowment_005_illustration.htm
Shalabh-According to IRDA guidelines Insurance companies need to show the INDICATIVE RETURNS which is fixed as minimum 6% and maximum 10%. But do remember that these are indicative which are not at all mandatory to give you returns. Hence just for calculation purpose these are done not only for Jeevan Saral but all policies. But when look at real values of bonus and LA then the actual picture will emerge. Hope you got clarification
First of all, thanks for such an informative article, really helped go beyond the LIC word-web. I have a query, and would be very grateful if you could answer it. Do we get the Guaranteed Additions when we surrender a policy after the mandatory period of 3 years is over? Specifically, I hold a Jevan Shree-1 since 2007 and have paid regular premiums till now (24 premiums). But now I am thinking about surrendering the policy. Could you give me a rough estimate of how much can I expect? I’ve been paying 6000 quarterly for a sum assured of 5 Lakhs. Thanks in advance.
Shivam-Yes you will get GA in case of surrender too. Regarding the current valuation of your policy, it depends on the term you opted, when you are surrendering. Also their is a formula to calculate surrender value. So I can’t say you how much you get (approximately) if you surrender now. Hence request you to visit your nearest LIC branch and you will get the exact amount immediately.
Sir, My age is 32 years. I have invested Rs.36000/- per year in the plan no. 14 (endowment policy with profits) for a term of 21 years on a sum assured of Rs.7,00,000/- at this age. Could you please say me the approximate amount i will get on maturity
plz help i took jivan saral plan premium 3062/- qut. basis ! i saw in promotional doc. that it will give me 219000/- on maturity but when got policy document i found that some assured is just 113800/- (i paid 3062*4*10yr=122480/-) and about bonus not single word is meintion so hw to know about my plan ????????????
term is 10 yr what i will rec in final ??????????
Ajay-Request you to raise this doubt by comment on my new post title “LIC’s Jeevan Saral-Why so much confusion?“
Hello,
I have taken a Jeevan Saral Policy in 2010 July. At that time I was aged 24 years. My Policy term is 25 years. The premium I pay is Rs.15000/- Quarterly (Rs.60,000/- Yearly). The Sum Assured mentioned in my Policy Bond is Rs. 12,50,000/- . I would like to know how much I would receive after 25 years during my Policy Maturity. ( I am confused why the sum assured is Rs.12,50,000/-?? Should it not be Rs.60,000 * 25 years = 15,00,000/-?
Kindly let me know please.
Thanks in advance!
Gayathri-First thing I need to clear you is, in this policy sum assured is based on monthly premium you pay. So your monthly premium is Rs.5,000 hence 250 times of your monthly premium will be the sum assured available which is Rs.12,50,000 but not Rs.15,00,000 what you calculated yourself. Now coming to return on this plan, maturity sum assured which you receive from this plan and which is guaranteed is Rs.18,24,400. Now addition to this return, you also receive loyalty addition. Currently for 10 and 11 yrs term of policies Rs.250 and Rs.300 respectively. If we consider the same trend for 25yrs policies then it will be Rs.1,450 per Rs.1,000 maturity sum assured. So in your case your maturity sum assured is Rs.18,24,400. So total LA receivable to you is Rs.26,45,380. Hence total receivable from this plan is Rs.18,24,400+Rs.26,45,380=Rs.44,69,780. Please do remember that only maturity sum assured is fixed but not LA (which in your case i consider according to current LA trend). So return on investment will be 7.61%. Now is it worth or not decide yourself. Considering the current inflation and what will be the future value of this Rs.44.69,780.