- Whole life means that the insurance cover remains in place till you attain the age of 100.
- Endowment means that the policy has a maturity value.
- With profit means that maturity value is linked to the profits the LIC makes.
The policy has two landmarks in its life. The first is the end of the premium paying term. If you reach the end of this term, alive, the LIC will pay you 8% of the ‘Basic Sum Assured’ every year.
The ‘basic sum assured’ is quite simply your insurance cover which is at least 10 times your annual premium. For example, if your annual premium is Rs 10,000 you will get a basic sum assured of at least Rs 1 lakh. Look at the table at the end of this article for sample premiums per Rs 1,000 of basic sum assured.
At the end of the premium paying term, in the example above, the LIC will start paying you 8% of Rs 1 lakh or Rs 8000 every year till the policy matures. The policy matures when you reach the age of 100 (One Hundred).
The maturity value of the policy includes a share of the profits that the LIC has made during the lifetime of the policy. This profit is distributed is to you under two names – ‘Simple Reversionary Bonus’ which is declared every year and ‘Final Additional Bonus’ which is paid on the maturity of the policy.
Note that this ‘maturity value’ is paid out when the policy matures, namely when you reach the age of 100. If you die before reaching this age, your nominees get this maturity value.
This is the amount you will get if you die during the term of the policy. This will be the highest of:
- 10 times the annual premium you pay
- The maturity value
- Basic sum assured
If you surrender within the first three years and/or fail to pay the premiums, you lose all the money you have paid for this policy. After three years, you get the Guaranteed Surrender Value or Special Surrender Value, whichever is higher. The Special Surrender Value is determined by LIC with IRDA approval from time to time.
The Guaranteed Surrender Value is the total of all the premiums you have paid multiplied by the Guaranteed Surrender Value Factor. This factor goes from 0 to 90% as you approach the end of your premium paying term. In other words, the maximum you can get back if you surrender the policy is 90% of your premiums under the Guaranteed Surrender Value.
Riders are ‘add-ons’ or optional features that you can latch on to your policy. In return for adding these riders, you pay higher premiums. LIC is offering four types of riders to Jeevan Umang:
–New Critical Illness Benefit Rider: This will pay out on the diagnosis of a critical illness.
–Accidental Death and Disability Rider: This feature will pay out a higher amount if you die or are disabled as a result of an accident.
–Accident Benefit Rider: This feature will pay you a certain amount if you meet with an accident.
–New Term Assurance Rider: This will pay an additional amount on your death during the policy term.
In general, endowment policies (such as LIC Jeevan Umang) are not a great either from an insurance or an investment point of view. If you have an investment horizon of 15 years, the minimum premium paying term, you can get much better returns in mutual funds at a much lower cost.
The tough conditions on surrender or failure to pay premiums are also a disadvantage. Remember the surrendering or failing to pay in the first three years will cause you to lose all your money. After that as well, you only get a fraction of your premiums back which depends on exactly when you surrender or stop paying.
If it is insurance you want, then go for term insurance. This type of insurance offers a cover that is typically 10 times bigger than endowment policies. You can buy a term insurance rider with Jeevan Umang but why do so, when you can get a term insurance policy independently?
Sample Premiums per Rs 1,000 of basic sum assured. For instance, these work out to roughly 8% of the sum assured for a 15-year policy term.
|Age||Premium Paying Term (Years)|
Minimum Sum Assured: Rs 2 lakh
Maximum Sum Assured: No limit
Premium Paying Term: 15, 20, 25 or 30 years
Policy Term: 100 – Age of entry.
Minimum Age of Entry: 90 days (Yes, parents can buy it for minors).
Maximum Age of Entry: 55 years
Premium Payment: Monthly, Quarterly, Half-yearly or Annually