LIC Jeevan Varsha Policy Review & Analysis

So its time of the financial year ending and everyone is eagerly looking forward for making some investments in some insurance plan or tax saving scheme to save the tax. Well, that's why LIC or Life Insurance Corporation of India has come out with its heavily advertised LIC Jeevan Varsha Policy. However, before you go ahead and sign a cheque for investing in this LIC Jeevan Varsha Policy, make sure you understand what you are going to buy. LIC had attempted a similar much advertised policy known as LIC Jeevan Aastha Policy in January this year, but it was reported to have missed the sales target by big margin.

In this article, lets see how does this LIC Jeevan Varsha Policy is expected to figure out. We will attempt to provide a review of LIC Jeevan Varsha Policy in this article.
The brochure and the details available on LIC Website for this policy are taken for making the calculations. If the readers believe that there is any error in the calculations or numbers in this article, please post your comments so that they can be rectified.

This is basically a money back policy from LIC, which is pitching in for investment from tax saving investors at the last moment by showing them the carrot for guaranteed returns at regular interval. It also provides insurance cover in case of death of the insured. Hence it is a mix of both investment and insurance (something which I never recommend).
The policy has 2 investment horizons, 9 years and 12 years with premium payments to be made for 9 years for both tenures. Since it has iunsurance component, there is a concept of Sum Assured (SA) and the minimum Sum Assured is at 50,000 Rs.

We take an example of a typical 30 year old investor who wants to be insured for 100,000 or 1 lac Rs. and has an investment horizon of 9 years.
However, the returns which we have calculated for a case of 30 year old person for 9 years investment horizon dont look so attractive.
Taking the data from the table on LIC website, he needs to pay an annual premium of 162.05 per thousand of Sum Assured. So that takes his annual investment to 16205 per annum. Over a 9 year period, he pays 145,845-00 Rs as total premium.

What are the returns of LIC Jeevan Varsha Policy?
Here is what this gentleman will get as returns from LIC Jeevan Varsha Policy:
The LIC Jeevan Varsha Policy assures that 15% of the SA is paid at the end of 3 years, 25% at the end of 6 years and 60% at the end of 9 years. That brings the guaranteed return from LIC Jeevan Varsha Policy at the end of 9 years to (60+25+15 = 100%) i.e. full Sum Assured or 100,000 Rs. back.
In addition to it, there is a Guaranteed Addition Money, which is Rs. 65 per thousand Sum Assured per year for a policy of 9 years term. So at the end of 9 years, the Guaranteed Addition Money will be Rs. 65 * 9 years * 100 (thousand) = 58,500. This will take the total return from LIC Jeevan Varsha Policy to 158,500.
Then there is a concept of Loyalty Addition Amount, but it is not guaranteed. If we take it as ZERO, then the total return from LIC Jeevan Varsha Policy stands at 158,500 Rs. over a 9 year long period.

So, in essence, you give LIC 145845-00 Rs. over a 9 year long period, and you get back 158,500-00 Rs. at the end of this 9 year period.
Does it sound good? Let's take a simple return calculation: (158,500 - 145845)/145845 = 8.68% over TOTAL 9 years. So does this policy look good for getting a meager 8.68% return over the total 9 years?

Many would immediately jump to a conclusion that this polciy is not good. However, dont forget to add the tax benefit that you will get. Suppose that you are in 30% tax bracket, then you save 30% * 145845 = 43753 as taxes. Add this to your returns and it becomes 202253.50
Now, the % return is 38.68% but again over the entire 9 year period.
Also, this policy is giving you insurance cover for sum assured, hence dont forget that implicit benefit.

Are there any alternatives to LIC Jeevan Varsha Policy?
Yes. I NEVER recommend mixing insurance and investment, because you end up focussing on returns and you dont realize how much extra it will cost you.
9 years is a very long investment period. Think about investing 100,000 Rs. in a Nifty based ETF as I've explained in this article. Even if you get a mere 5% year on year return, then it will become 155132.82. If it gives 10% year on year return, your return will be 235795 - much more than what you get from this policy.
From the remaining amount, buy pure no-frill life insurance cover. That will hardly cost you 5000 Rs. per annum and you will have the benefit of both the high returns from the stock market returns in the long run and life cover. Call your agent to get the precise amount of premium for life insurance and dump the remaining money in ETF