LIC Jeevan Aastha Policy Review: Look before you leap

You may have seen heavy advertising from LIC or Life Insurance Coprporation of India, for it's limited period offering of Jeevan Aastha Policy which aim to provide guaranteed returns. People are wondering whether they should invest in such policy given the brand and trusted name of LIC and how much return can they expect from this policy.
In this article, we will attempt to provide a review of LIC Jeevan Aastha Policy, whether it is a good policy to invest in, whether one should invest in Jeevan Aastha Policy and what are the risks involved in Jeevan Aastha Policy.

Now, what is happening in the markets is that investors trust is shaken given the huge turmoil in the global stock markets and frauds like Satyam coming to the fore. Investors who used to love risk in stock markets have witnessed their money value coming down significantly and hence they have become extra-extra cautious with their investments. They are now looking for less risk and assured returnes and Jeevan Aastha Policy is expected to make the most of this policy which if offered till January 22, 2009.

What actually is LIC Jeevan Aastha Policy?
It's a mix of investment and insurance (something which I never recommend). It promises assured guaranted returns and also give you life cover, which may depend upon your age, investment horizon and the investment value.

What all benefits are available under the LIC Jeevan Aastha Policy?
It gets a lot tricky here for common man to understand. There are benefits with terms like maturity sum assured, basic sum assured, death benefit, guaranteed addition, loyalty addition, etc. etc.

What is the rate of return that an investor will get in LIC Jeevan Aastha Policy?
According to the LIC brochure, one will get Rs 100 per Rs 1,000 maturity sum assured per year for a policy of 10 years and Rs 90 per Rs 1,000 maturity sum assured per year for a policy for five years. But hold on, dont do that calculation mistake. because this is where people make mistake of doing the simple calculation and assume that the rate of return is 9% for five-year plan and 10% for the 10-year plan. It is not that simple. Actually, what you get is a compounded annual growth rate or CAGR in return and that would mean your returns would not be that simple, easy and big.

Does the return on LIC Jeevan Aastha Policy vary as per the age?
Yes - Definitely. Because it is an Insurance Plan, therefore age plays an important role. Take this example as quoted in TOI. A 13-year-old investor (which is the minimum age at entry) who takes a minimum cover of Rs 1.5 lakh pays a premium investment of Rs 24,668 would get around 7.32%, whereas a 60-year-old (maximum age at entry) who pays Rs 29,145 as premium would get around 5.55%. Similarly, a 13-year-old would get around 6.78% and a 60-year-old would get around 4.69% from a five-year plan. So now you see, the best possible case from insurane point of view and age wise will get only 7.32% return per year, as compared to the simple interest calculated return of 10%. Instead many insurance agents are mis guiding investors by claiming that for 10 year, rate of return is 10% while for 5 years, it is 9%.

Is it really beneficial to invest in LIC Jeevan Aastha Policy?
That depends upon your income slab, age and your purpose. If you want insurance, buy a no-frill insurance policy -that would be dirt cheap for you and serve your purpose of insurance coverage.
If you want investments, then along with your age, think about your net investment returns what you will get. In the first glance lookign at the example mentioned above, it may not be that fruitful, but also notice that you may save 10%, 20% or 30% tax on your investment, so account for that as a return as well.
Then, though it is not allowed legally, some insurance agents may offer some cash back from their commission. LIC is leniently giving 2% to 3% commission to agents. So if you can strike a deal, then you may get some cash back, though it is legally not allowed.


Any alternative competitor products for LIC Jeevan Aastha Policy?
Yes, IDBI has come out with Bondsurance, but agents say that it is no better than LIC Jeevan Astha Policy.

Other alternative investments that can be considered instead of LIC Jeevan Aastha Policy?
Yes.
Tamil Nadu Power Finance and Infrastructure Development Corporation offers 11% interest for a one year deposit and more than 12% for three years under the cumulative interest payment scheme, as per the news.
The National Bank for Agriculture and Rural Development (NABARD)’s zero coupon bond Bhavishya Nirman (BNB) with a lock-in period of 10 years is another option. The initial investment is Rs 8,500 per bond and after 10 years, the investor will receive Rs 20,000 for each bond they own