LIC Jeevan Labh, an endowment life insurance policy: Should you buy?

LIC Jeevan Labh Plan (836)

LIC Jeevan Labh is a participating endowment life insurance policy. Participating means that you participate or get a share of the profits of the insurer (in this case, LIC or Life Insurance Corporation of India). Endowment means that even if you survive the term of the policy, you get a maturity value. How much will you get? Unfortunately, there is no way to know this and is entirely dependent on the profits LIC makes.

Simple Reversionary Bonus

This is a technical term to describe the share of profits of LIC that you get under this policy. It is called a bonus but isn’t really one – you are only getting what the policy is designed to give you. The insurer has to declare a ‘simple reversionary bonus’ every financial year which is a share of its profits. The bonus is declared as a percentage of the sum assured. For example, if your cover is Rs 20 lakh, the bonus might be 5% or Rs 1 lakh in FY 2018.

Insurance companies are allowed by the regulator to illustrate the money that policyholders will get using 4% and 8% as gross investment rates of return. However, these are standardized numbers that have no relationship with actual past performance.

Death Benefit

Also known as insurance cover or life cover, this is the amount paid out to your nominee when you die. In case of Jeevan Labh, this will be a minimum of 10 times the annual premium you pay.  

Taxation

The premium will be eligible for deduction under Section 80C. The proceeds of this policy will be exempt from income tax under Section 10(10)(D).

Policy Term

16 years, 21 years or 25 years as per your choice. In return, you pay premiums for 10, 15 and 16 years respectively for each option.

Age Eligibility

Minimum age is 8 years.

Maximum age is 50 for 25 years term, 54 for 21 years term and 59 for 16 years term

Sample Premiums

These are sample annual premiums per Rs 1,000 of sum assured (life cover). The minimum sum assured is Rs 2 lakh.

Your Age Premium (for per Rs 1,000 of sum assured)
16 years 21 years 25 years
20 85.20 54.40 45.95
30 85.50 54.95 46.60
40 86.80 56.80 48.90
50 90.95 61.85 54.60

Other features

Term Insurance Rider

This policy offers you an optional term insurance ‘rider.’ A rider is an ‘add-on.’ You pay a higher premium and in return you get this perk. A term insurance rider will enhance your death benefit (the sum your nominees will get if you die during the policy term) in return for a higher premium. It will NOT increase your maturity value.

Accidental Death and Disability Rider

In this rider, you will get a higher payout if you die as a result of an accident or if you become permanently disabled as a result of an accident. In case of permanent disability, the sum assured will be paid in equal monthly instalments over 10 years. Once again, it does not increase the maturity value of the policy if these circumstances do not occur.

Premium Frequency and Grace Periods

You can opt to pay your premium monthly, quarterly, half-yearly or annually. A delay of 1 month for quarterly, half-yearly and annual and 15 days for monthly premium is allowed under the policy as ‘grace period.’

Policy Lapse/Surrender

If you surrender the policy or simply fail to pay premiums in the first three years of its existence, you get nothing back. In other words, for the policy to acquire a surrender value, you should have paid your premiums for at least the first three years.

You can revive a lapsed policy within 2 years of the date of the first unpaid premium, after paying unpaid premiums and interest on them.

If you surrender the policy after three years, you get a ‘Guaranteed Surrender Value.’ This is the sum total of the premiums you paid multiplied by the ‘guaranteed surrender value factor.’ This goes from 30% in year 3 to 80% in the final year. In other words, if you surrender before maturity you do NOT get all your premiums back.

RupeeIQ Take:

There is a reason why insurance and investments should not be mixed. Apart from high costs, insurance policies do not make for transparent investments. There is no publicly available past track-record of returns. Unlike Mutual Funds, there is no daily NAV, no benchmark, no riskometer and no monthly portfolio declaration of the fund. If you want insurance, a term insurance policy will serve your needs best. Such a policy will only pay your nominee when you die and in no other case. You will also be informed in advance, exactly how much will be paid out. In return, the premiums on these term insurance policies are much lower than the premiums on endowment policies such as ‘Jeevan Labh.’

That said, if you’re interested in the policy, here is the link.

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.