The cup doesn’t brim with ‘anand’

LIC has re-launched its popular product Jeevan Anand. The traditional whole-life, participating plan now comes with new features. In line with the new regulations for traditional products, Jeevan Anand now offers a sum assured of 10 times the premium (the minimum cover a policyholder will get).

Also, the surrender value is better for exit in the initial policy years. Earlier, when a policy was surrendered after three years, the surrender value one received was 30 per cent of the premiums paid, excluding the first year premium.

Now it is 30 per cent of total premiums paid.

So, is the policy a better product now? We take a look.

Policies of higher sum assured will have a higher rebate in premiums now. For instance, policies of sum assured ₹5 lakh and above but less than ₹10 lakh will have a rebate in premium of ₹2.5/₹1,000 of sum assured, compared with ₹1.5/₹1,000 earlier. However, Jeevan Anand has dropped some of its old features.

One, the personal accident cover, which was inbuilt in the policy earlier, is now available only as a rider.

For a personal accident cover you will have to pay up ₹1/₹1,000 of sum assured.

Further, you will also have to cough up money towards service tax which works out to 3.09 per cent on premium (in the first year and thereafter 1.54 per cent).

This follows the IRDA’s mandate last year that service tax should not be included in contractual premium, but collected separately. Previously, LIC paid the service tax out of the policyholder’s funds.

Also, note that while the insurance cover has been increased, LIC has made the renewal rules stricter. Earlier, Jeevan Anand could be renewed within five years from the date of the first unpaid premium. But now, it has to be renewed within two years.

In the new Jeevan Anand, there is no entry for individuals over 50 years of age. Earlier, it allowed entry up to 65 years.

The maximum policy term has also been reduced to 35 years from 57 years previously. Very clearly, in the new version, the premium is higher.

But then, returns could also be higher. LIC may be able to declare higher bonuses as service tax charges and premium for accident cover are going to be collected from policyholders. For a male of 35 years, premium on ₹5 lakh sum assured for a 35-year term will now work out to ₹16,553 (compared with ₹14,552 earlier). Assuming last year’s bonus rates for Jeevan Anand (a reversionary bonus of ₹47/₹1,000 of sum assured plus a terminal bonus of ₹2,300/₹1,000 of sum assured), the maturity amount here would be ₹24.72 lakh.

So, returns work out to around 7 per cent (excluding the sum assured that will be paid after the policy period).

However, the call here has to be on why you want a whole life plan. If it is for insurance, term covers are any day cheaper. If it is for returns, there are debt instruments, such as PPF, that give you better returns.

With PPF, the principal, the interest and the maturity proceeds are tax exempt. For 2013-14, the PPF interest is 8.7 per cent — this, though, is subject to revision every year by the Government.

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