In the print media one can easily spot ads by LIC for their Bima Bachat Policy. Occassionally the ads also appear on TV. This is being advertised as a single premium money back policy which claims to offer insurance for sum assured amount to the nominee/family members in case of death of the policy holder. The policy also offers assured returns in case of survival of the policy holder during the policy period. Overall, it sounds good, but let's see the numbers involved to get the clear picture of the policy details.
What actually is the LIC Bima Bachat Policy?
LIC Bima Bachat Policy literally means "Insurance Saving Policy".
If an investor or insured or policy buyer decides to buy this LIC Bima Bachat Policy, he needs to pay only ONE-TIME SINGLE PREMIUM. The premium to be paid depends upon the age of the policy holder, the required cover (sum assured) and the duration of the policy (see details below).
What this LIC Bima Bachat Policy offers is 2 scenarios:
1) In case of death of the policy holder during the policy period - the nominee or family members will get the sum assured or insurance cover as selected by the policy holder
2) In case of survival of the policy holder - at the end of policy period, he/she will receive back the entire premium paid at the start of the policy, plus 15% of the sum assured value every 3 years (excluding the last year), plus a variable amount (loyalty bonus), as decided by LIC.
Hence this LIC Bima Bachat Policy appears to be offer a good product with a mix of investment plus insurance, at the first glance (although we do not receommend mixing insurane with investment - see details below).
LIC Bima Bachat Policy: Review Analysis & Calculation Details
What are the policy duration period offered by LIC Bima Bachat Policy?The LIC Bima Bachat Policy offers 3 options for duration period - 9 years, 12 years and 15 years.
How is the single premium determined for purchasing the LIC Bima Bachat Policy?
The premium to be paid depends upon the age of the policy holder, his/her desired sum assured amount (insurance amount) and the duration of the policy. Please see the table below:
The sample premium rates are as under: -
| Age | Annual Premium per 1000 SA | ||
| 9 | 12 | 15 | |
| 15 | 716.40 | 771.35 | 804.00 |
| 20 | 717.20 | 771.85 | 804.40 |
| 25 | 717.55 | 772.25 | 804.95 |
| 30 | 718.45 | 773.35 | 806.10 |
| 35 | 721.05 | 775.75 | 808.55 |
| 40 | 725.80 | 780.25 | 812.95 |
| 45 | 734.10 | 787.60 | 819.60 |
| 50 | 746.60 | 797.90 | 828.95 |
| 55 | 762.65 | 811.95 | 841.75 |
| 60 | 784.80 | 831.30 | 859.35 |
| 65 | 816.25 | - | - |
And that's not all - if you happen to take insurance cover (sum assured amount) for more than 50,000 Rs., you will be eligible for a rebate/discount in the premium you pay as per the table below:
The higher amount you select for your insurance cover, the higher rebate you get in paying your premium amount for the LIC Bima Bachat Policy.
Hence, you as a policy holder get to select your choice of insurance cover and policy duration. Depending upon your age and duration of policy, the single premium to be paid is arrived at.
If I select a high value of sum assured taking rebate in LIC Bima Bachat Policy, does that rebate reduce my 15% bonus and/or overall return?
Yes and No - The rebate percentage will not reduce your 15% return calculations every 3 years because it is based upon the sum assured amount. But it will reduce your final return guaranteed amount as that is dependent on the premium you pay.
Can I see an example of death and survival benfit for LIC Bima Bachat Policy?
Yes. LIC does provide a good illustration for the same.
Assume that there is a policy holder 35 years old who bought a 9 year duration policy for a sum of Rs One Lakh.
He pays a single premium of Rs 67058.
Here are the death and survival benefit illustrations:
| End of year | Total premiums paid till end of year | Benefit on death during the year | ||||
| Guaranteed | Variable | Total | ||||
| Scenario 1 | Scenario 2 | Scenario 1 | Scenario 2 | |||
| 1 | 67058 | 100000 | 0 | 0 | 100000 | 100000 |
Survival Benefits :
| End of year | Total premiums paid | Benefit payable on survival at the end of specified year | ||||
| Guaranteed | Variable | Total | ||||
| Scenario 1 | Scenario 2 | Scenario 1 | Scenario 2 | |||
| 3 | 67058 | 15000 | 0 | 0 | 15000 | 15000 |
| 6 | 67058 | 15000 | 0 | 0 | 15000 | 15000 |
| 9 | 67058 | 67058 | 0 | 24300 | 67058 | 91358 |
Is this LIC Bima Bachat Policy really useful ?
That's the million dollar question - One needs to look at it from both the scenarios of returns it is offering.
Let's take 2 extreme cases - one of a 35 year old person and another of a 65 year old person - in both cases sum assured selected is 1 Lakh and policy duration is 9 years.
For the 35 year old case, he will pay a one time premium of Rs. 67058, while For the 65 year old will pay a one time premium of Rs. 75911.
- in case of death, either of their nominees will get only 1 Lakh Rs. as sum assured
So from an insurance point of view, I dont think this high cost they are paying as a premium (Rs. 67058 or Rs. 75911) justifies the 1 Lakh insurane benefit.
- in case of survival, the 35 year old will get Rs. 97,058 (67,058 + 15,000 + 15,000) guaranteed (plus any additional loyalty additions); while the 65 year old will get Rs. 105911 (75911 + 15000 + 15000).
Hence for the 35 years old, the effective percentatge return over a 9 year long period is 97058/67058 = 44.75% while for the 65 years old, it is 105911/75911 = 39.52% over a 9 year period.
The nos. may be looking big, but do remember that they are over a 9 year long period.
Today, even if you invest the same amount in a Bank Fixed deposit for a period of 9 years, the 67,058 for 35 years policy holder case will become 104028.96 Rs. and the Rs. 75911 for the 65 year old case will become 117,762.
Hence, in case of survival, this LIC Bima Bachat Policy is not offering any special returns.
One can say that this is offering insurance, but given the high amount of premium to be paid upfront for the relatively small insurance cover, it does not look appropriate.
So what are the other options for investors other than LIC Bima Bachat Policy?
As illustrated, both on the insurance front and the returns front, this LIC Bima Bachat Policy fails to provide proper benefits. True that it offers both insurance and returns, but both of the scenarios appear inadequate. Please note that the calculations mentioned are based on only Guaranteed Returns - additional loyality values are not considered as they are not guaranteed.
Instead, how about taking a pure term insurance where you dont get any returns but get life cover for a small amount of premium. Rest of the money can be either dumped into a Fixed deposit at even a moderate interest rate of 5% (although interest rate offering currently are at high rates of 9% to 10%). You will be able to claim good coverage on insurance side as well as assured returns on returns side.
Other option is to dump the money into an ETF instead of the fixed deposit, if you are willing to take a chance on the stock market for a long horizon of 9, 12 or 15 years. Here is an example of Here is an Example of Nifty based ETF
If you want to see investment, insurance and tax saving be treated seperately, do ensure to read this eye-opening article Insurance v/s Investment v/s Tax savings
What are the other Policies from LIC other than LIC Bima Bachat Policy?
Here is a list of All LIC Policies
That's the million dollar question - One needs to look at it from both the scenarios of returns it is offering.
Let's take 2 extreme cases - one of a 35 year old person and another of a 65 year old person - in both cases sum assured selected is 1 Lakh and policy duration is 9 years.
For the 35 year old case, he will pay a one time premium of Rs. 67058, while For the 65 year old will pay a one time premium of Rs. 75911.
- in case of death, either of their nominees will get only 1 Lakh Rs. as sum assured
So from an insurance point of view, I dont think this high cost they are paying as a premium (Rs. 67058 or Rs. 75911) justifies the 1 Lakh insurane benefit.
- in case of survival, the 35 year old will get Rs. 97,058 (67,058 + 15,000 + 15,000) guaranteed (plus any additional loyalty additions); while the 65 year old will get Rs. 105911 (75911 + 15000 + 15000).
Hence for the 35 years old, the effective percentatge return over a 9 year long period is 97058/67058 = 44.75% while for the 65 years old, it is 105911/75911 = 39.52% over a 9 year period.
The nos. may be looking big, but do remember that they are over a 9 year long period.
Today, even if you invest the same amount in a Bank Fixed deposit for a period of 9 years, the 67,058 for 35 years policy holder case will become 104028.96 Rs. and the Rs. 75911 for the 65 year old case will become 117,762.
Hence, in case of survival, this LIC Bima Bachat Policy is not offering any special returns.
One can say that this is offering insurance, but given the high amount of premium to be paid upfront for the relatively small insurance cover, it does not look appropriate.
So what are the other options for investors other than LIC Bima Bachat Policy?
As illustrated, both on the insurance front and the returns front, this LIC Bima Bachat Policy fails to provide proper benefits. True that it offers both insurance and returns, but both of the scenarios appear inadequate. Please note that the calculations mentioned are based on only Guaranteed Returns - additional loyality values are not considered as they are not guaranteed.
Instead, how about taking a pure term insurance where you dont get any returns but get life cover for a small amount of premium. Rest of the money can be either dumped into a Fixed deposit at even a moderate interest rate of 5% (although interest rate offering currently are at high rates of 9% to 10%). You will be able to claim good coverage on insurance side as well as assured returns on returns side.
Other option is to dump the money into an ETF instead of the fixed deposit, if you are willing to take a chance on the stock market for a long horizon of 9, 12 or 15 years. Here is an example of Here is an Example of Nifty based ETF
If you want to see investment, insurance and tax saving be treated seperately, do ensure to read this eye-opening article Insurance v/s Investment v/s Tax savings
What are the other Policies from LIC other than LIC Bima Bachat Policy?
Here is a list of All LIC Policies
No comments:
Post a Comment