What do you mean by Life Insurance?
The actual and correct meaning of the life insurance is to protect your dependent from uncertain event called “DEATH”. But Over a period of time, People like you and me have changed the meaning of the Insurance to Tax saving instrument or wealth generation product. Please let me explain that you have been misguided and this is a better way for understanding life insurance.
Is your sum assured amount justifying your dependent’s need?
I know you have already taken many insurance policies and happily paying premiums on time. But, the really important question is that the total sum assured (S.A. S.A. S.A.
How do we achieve financial security for dependent in your absence?
The obvious answer is by increasing sum assured amount to 10 Lacs, 20 Lac, 30 Lac or 50 Lac. This is will be individual’s call based on no(s) of dependent.
Just imagine the policy premium amount for 10 Lac for any convention policy? If we consider best selling LIC’s Jeevan Anand policy then your annual premium will be Rs. 52,577.EvenIf you are capable of paying annual premium Rs. 52,577 then also it‘s not worth paying for it.
The policy with higher S.A.
What is a term insurance policy?
Term insurance is the purest insurance product at the cheaper policy premium where the nominee gets the sum assured amount at the death during policy year and there are no benefits like bonus or loyalty additions at the survival of life assured at the maturity. The beauty of this product is the premium amount.
Annual Premium of Term Insurance at different age.
Premium Per 10 Lac | ||
Age | Maturity Years | |
20 | 25 | |
20 | 2208 | 2366 |
25 | 2544 | 2861 |
30 | 3227 | 3821 |
35 | 4613 | 5534 |
40 | 6940 | 8306 |
| As per LIC's Anmol Jeevan Plan | ||
Is term insurance wastage of the money?
No, You are getting enough financial security for the dependent at very less premium.When you are doing an investment (Like MF or PPF), you have to think about the return of the investment at the maturity. But, When you are taking an Insurance policy, you have to think about the return (S.A,) of the policybeforethe maturity in case of uncertain event.
How can we understand any insurance product better?
You can derive almost any insurance product using term insurance and PPF(Public provident fund).
Let's Prove Jeevan Anand is less worth than Term insurance+PPF with simple maths.
Jeevan Anand :This plan is a combination of endowment assurance and whole life plans.it provides financial protestion against death throughout the lifetime of the the life assured with the provision of payment of a lump sum at the end of the maturity.
For details : http://www.licindia.in/endowment_005_features.htm
PPF : This is a post office saving scheme with the annual compound interest rate of 8%.
Current age: 25 Sum Assured (S.A.
TERM INSURANCE and PPF | ||||||
Year | Premium of Term Insurance | Sum Assured (A) | Opening Balance (B) | Deposit in PPF Account(C) | Total Interest (D) | Payable at Death (A+B+C+D) |
1 | 2,356 | 1,000,000 | 0 | 71,802 | 5,744 | 1,077,546 |
2 | 2,356 | 1,000,000 | 77,546 | 71,802 | 11,948 | 1,161,296 |
3 | 2,356 | 1,000,000 | 161,296 | 71,802 | 18,648 | 1,251,746 |
4 | 2,356 | 1,000,000 | 251,746 | 71,802 | 25,884 | 1,349,432 |
5 | 2,356 | 1,000,000 | 349,432 | 71,802 | 33,699 | 1,454,933 |
6 | 2,356 | 1,000,000 | 452,932 | 71,802 | 42,139 | 1,566,873 |
7 | 2,356 | 1,000,000 | 568,873 | 71,802 | 51,254 | 1,691,929 |
8 | 2,356 | 1,000,000 | 691,929 | 71,802 | 61,098 | 1,824,829 |
9 | 2,356 | 1,000,000 | 824,830 | 71,802 | 71,731 | 1,968,363 |
10 | 2,356 | 1,000,000 | 968,362 | 71,802 | 83,213 | 2,123,377 |
11 | 2,356 | 1,000,000 | 1,123,377 | 71,802 | 95,614 | 2,290,793 |
12 | 2,356 | 1,000,000 | 1,290,794 | 71,802 | 109,008 | 2,471,604 |
13 | 2,356 | 1,000,000 | 1,471,603 | 71,802 | 123,472 | 2,666,877 |
14 | 2,356 | 1,000,000 | 1,666,878 | 71,802 | 139,094 | 2,877,774 |
15 | 2,356 | 1,000,000 | 1,877,774 | 71,802 | 155,966 | 3,105,542 |
Total Premium and Deposit Paid = 1,112,370 | ||||||
Maturity/Survival at end of 15th Year = 2,105,542 | ||||||
Term Insurance Premium is considered of LIC's Anmol Jeevan-I for the age 25 | ||||||
You can not deposit more than Rs.70,000 in PPF account in one Financial year | ||||||
LIC JEEVAN ANAND | ||||
Year | Premium | Sum Assured (A) | Cumulative Bonus (B) | Payable at Death/Maturity (A+B) |
1 | 74,158 | 1,000,000 | 45,000 | 1,045,000 |
2 | 74,158 | 1,000,000 | 90,000 | 1,090,000 |
3 | 74,158 | 1,000,000 | 135,000 | 1,135,000 |
4 | 74,158 | 1,000,000 | 180,000 | 1,180,000 |
5 | 74,158 | 1,000,000 | 225,000 | 1,225,000 |
6 | 74,158 | 1,000,000 | 270,000 | 1,270,000 |
7 | 74,158 | 1,000,000 | 315,000 | 1,315,000 |
8 | 74,158 | 1,000,000 | 360,000 | 1,360,000 |
9 | 74,158 | 1,000,000 | 405,000 | 1,405,000 |
10 | 74,158 | 1,000,000 | 450,000 | 1,450,000 |
11 | 74,158 | 1,000,000 | 495,000 | 1,495,000 |
12 | 74,158 | 1,000,000 | 540,000 | 1,540,000 |
13 | 74,158 | 1,000,000 | 585,000 | 1,585,000 |
14 | 74,158 | 1,000,000 | 630,000 | 1,630,000 |
15 | 74,158 | 1,000,000 | 675,000 | 1,675,000 |
Total Premium Paid = 1,112,370 | ||||
Maturity at end of 15th Year = 1,675,000 | ||||
On Death, Nominee will get S.A. = 1,000,000 again | ||||
Bonus assumed at average of Rs 45 per thousand of Sum Assured. | ||||
So, At the maturity, Jeevan Anand(1,675,000) is less worth than Term insurance+PPF(2,105,542).
I hope, by now you would have understood the concept and importance of term insurance. In simple words “when you think about life insurance then you should think only about Term Insurance”.
I am not suggesting you to have term insurance with PPF account instead of Jeevan Anand policy. But, I strongly recommend you to have term insurance policy for your dependent. You should always take insurance for others not for yourself.
Many insurance agents do not advise us to opt for term insurance because they are getting less commission from cheaper term insurance premium. One of my relative is selling LIC insurance product since 1980 in my town and He has never sold any single term insurance policy before I took it in year 2008. In fact, He was not aware that such policy exists in LIC.
So, start paying your term insurance premium from tomorrow else you can read detailed post about Term Insurance fundamentals.
If you are convinced about term insurance then please share it with your friends and family members else share your doubts with me.
Thanks for posting this easy to understand article. I am sure many people must have benefited from it.
ReplyDeleteI am happy to know my post helped you taking the good decision.
ReplyDeletegr8 it help, my friend told me yesterday about the term insurance, but your chart helped me lot.
ReplyDeleteThanks.
It is very good article .Till today i was in confusion for these things, Now i have a question i want to take loan against my LIC policy which is about to mature in next year and want to wash off my personal loan,,is it advisable ?
ReplyDeletesanjiv
Thanks Sanjiv for your kind words...1st identify how much loan you will get on LIC and what about processing fees involved and compare with your current personal loan interest(including prepayment charges). if you are getting good difference(profit) then you can think about it..otherwise wait until yr policy is mature next year...Go for good term insurance in future..
ReplyDeletegood info, am planning to take a insurance plan this month end. your info helps me a lot.
ReplyDeleteNice post!
ReplyDeleteWhat's your take on Aviva i-Life? It's currently the cheapest term plan in India
@Ram, Thanks for your comments.
ReplyDeleteAviva I-life is currently cheapest online term policy But This company in insurance industry is relatively new.So I suggest to consider relatively older company in for this...
One speculation --LIC may come up with online version also..but dont wait for LIC..go for term insurance right away..because you can close it and get if from LIC if they launched it in future..
Very helpful info...cleared a lot of confusion in choosing an appropriate insurance plan....thanks a lot JigVishu :)
ReplyDeletegrt post...!!..helped me a lot..:))
ReplyDeleteI am truly saddened by the way you have such a GLARING MISTAKE in your analysis and NOBODY has been able to catch it. Let us skip DEATH during the term of the investment because a 25 year old healthy male is unlikely to die by 40 unless he meets with an accident, is affected with ailment or something terrible happens. Therefore, let’s talk solely about investment. Let’s see what you have done.
ReplyDeleteYou have compared the returns of Term Insurance + PPF against Jeevan Anand policy for the same investment amount of 74,158/- and you have very cleverly kept the last column as “Payable at Death”, because obviously the only way to make some sense in the analysis is show death during the term of the investment! Now, as per your chart itself, the return on PPF would be Rs. 21,05,542/- after 15 years at a steady rate of 8% (factually 16 years – you have not mentioned that) and the return on Jeevan Anand policy after 15 years would be Rs. 16,75,000/-. I agree with this, no arguments. But now comes the real picture. The person after 15 years would be 40+ in age and his term insurance gets over after 15 years. So the person’s lifetime return from Term Insurance + PPF is Rs. 21,05,542/- only. But hello! The lifetime return from Jeevan Anand policy is Rs. 26,75,000/- because irrespective of whether the person dies after 40 or at 100, his insurance cover of Rs. 10 lakhs is ensured for a lifetime and not just for 15 years like term insurance! The person gets Rs. 4.3 lakhs lesser than PPF on maturity after 15 years but ensures he has built a ‘wealth’ of 10 lakhs for his nominee. After 15 years, if he takes term insurance again, he has to again decide during what period he can die – this is so utterly foolish!
Even during the term of the investment, I mentioned earlier that a healthy 25 year old male / female is unlikely to die by 40 unless he or she meets with an accident, is affected with ailment or something terrible happens. Do you know that Jeevan Anand comes with an in-built accident rider of 5 lakhs till the age of 70? Which means that if the person meets with an accident, the SA would not be 10 lakhs but 15 lakhs along with bonus accumulated in the year in which he/she dies. For e.g. if the person dies in the 12th year from an accident, he gets an amount in excess of Rs. 20 lakhs (SA + Accident Benefit + Bonus). This brings it at par with PPF+Term Insurance investment in the 12th year because there is no guarantee that PPF will yield a steady return of 8% every year since PPF rate of return is linked to the yield of government bonds. In the year 2000 (12 years ago), PPF rate of return was 12% and today has been reduced by almost 4%. Is there any guarantee that PPF rate of return would not go down a further 4% in the next 12 years (which in fact would make the returns on PPF + Term Insurance investment lesser than a Jeevan Anand investment in case of death during the term of the investment)??. I can go on and on with charts and comparisons and studies and research but I will cut it now. I am not trying to belittle PPF, Term Insurance or any financial instrument. What I am trying to put across is that the ‘value’ of an instrument should be judged meticulously before comparing it randomly with any other instrument and showing only the financial results and not the results based on ‘value’. Every instrument comes with its own set of benefits and disadvantages and an investor must judge what is correct for him / her and then go with that instrument.
Every instrument is good and has its own set of values. Let the investor decide after being FULLY INFORMED. Life is not about excel sheets my friend. Life is about values. Be VALUABLE to your customer. Not just a financial planner.
No personal attacks on you.
Yours sincerely,
An INFORMED and a proud agent of LIC.
God Bless.
Thanks My Agent for comments.
DeleteWhile reading your comment only I have realized you must be some agent.
Chancing of Death today, tomorrow,after 10 years,25 years are almost equal and unpredicatable.
If it's sure then we will not have insurance company.
being Insurance agent also, you are starting your question with Investment aspect of Policy.
the main point of Comparision is to show that few people are misselling Life insurance policy in the name of Investment+Insurance and people getting nothing.
For 10 lac of LiC jeevan Anand policy, We need to pay very huge premium of 74,000 plus and 10 lac is nothing when you find sum asssured needed for individual. so nobody can afford your policy. If consider Ideal 50 lac sum assured then premium will touch some where near individual's Anuual salary.
So point is
If want insurance coverage then go for Term insurance policy from LIC or some private company.
If you want Investment product then there are plenty of good option other than insurance product.
Regarding PPF return, Yes it's changing based on govt action and current rate is 8.8% also(not 8%). This is just example to show safe and guranteed return to match up Jeevan Anand.
Regarding Jeevan Anand, Is policy return fixed? No It's changing every year based on LIC performance and they declares Bonus and bonus amount is reducting marginally year on year basic.
While selling, many agent assumed higher bonus and misguide many people.
Regarding Jeevan Anand Pure return after 15 years:
Total Investment = 1,112,370
Total Return (SA+Bonus) = 1,675,000
So It comes around 5.4% P.A only.
So we compare with anyother inverstment option then it's far below.
After 15 years:
I know you will say that person will get additional 10 lac rupees at death..
In example,you are getting around Rs 4 lac so you an contiune same ppf account more years to get more returns. or the differnece of around 4 lac rupess can be converted into FD to rescure it for future.
If live longer then Rs 4 lac be big amount not just Rs 10 lac(fixed in Jeevan Anand).
Summary:
Insurance : Take Term insurance policy for good sum assured amount
Investment: Choose good option other than Insurance policy based on your risk profile.
You and many reader, please go thru recent news in times of india if you need more clarification from expert.
http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=pastissues2&BaseHref=TOIA/2012/08/06&PageLabel=16&EntityId=Ar01601&ViewMode=HTML
I know one Agent who never sold any term insurance policy in his 40 years of job. it indicates that he is more interested in his commision then people's requirement of life insruance.
My duty is to bring awareness about product's hiddent facts which people are not aware.
I hope that i answer your query.
Thanks,
Jigvishu
very clever, you haven't posted my comment! Shows who is misguiding the public!
ReplyDeleteI saw your comment today and publised it now(I respect everyone's opinion).
DeleteBrother first of all, I am not just an "insurance agent" - I am a marketeer of the financial products offered by LIC - which means I see the true "value" of each and every product which suits a person's profile and then I recommend a product - just branding me as an "insurance agent" shows the way you think about LIC as a company, a total lack of knowledge of the value of its products and a complete disregard for its advisors. You are a CFP and CFPs do three things as a mantra: 1) Term Insurance + PPF is the best form of investment; 2) Everything and Anything about LIC is bad, even their term insurance is worse than private companies (although the private companies are reporting massive losses every year and have TERRIBLE claim settlement ratios); and 3) Constantly comparing debt allocation products with equity products when planning' cannot be associated with equity investments! Google the facts - see that more than a million mutual fund folios have been removed in the first half of this year - where did these people make money anyway? Briefly talking about your points:
ReplyDelete1. Once again I see you are trying to show that 10 lakh is nothing from Jeevan Anand and comparing it with term insurance! Brother Jeevan Anand is not sold keeping the insurance aspect in mind - it's for people who want to create wealth for their nominees whenever they die (AT 40 OR 100). Term insurance is for people who only want to protect their income during the most productive periods of their lives. If this is the real need, then people should go in for crores of term insurance rather than just 50 lakhs! Please compare equal products and not products which have separate outlines and separate purposes altogether!
2. Then you talk about the often repeated thing on the policy returns being "not fixed / guaranteed" in Jeevan Anand or any other LIC policy. Can you tell me what is fixed??! Mutual Funds?! Equities?! PPF?! Government Bonds?! Nothing is FIXED my friend! But LIC as a company has a 'life fund' in excess of Rs. 11 lakh crores today and bails out companies such as ONGC and is the largest financial institutional investor in the country! By the way, with such a massive corpus at its disposal (which is more than the entire corpus of the mutual fund industry put together), it is in a position to deliver what it promises and not make castles in the air like the so called "better investments". We need to understand companies and their backgrounds rather than only working on excel sheets!
3. Did you just mention bank FD? In spite of knowing that it's taxable and the rates are going to go down further in future as India as pushing towards a developing economy? I have nothing further to say - you need to study economics, inflation rates, budget proposals and historical FD trends more thoroughly my friend.
4. If your known Agent did not sell term insurance policy in 40 years, then that does not mean nobody recommends term insurance or that all other policies of LIC are crap, right? As I said earlier and I repeat again - term insurance has its own benefit - income replacement and each and every other plan, whether endowment or children or retirement, has its own benefits and features and CANNOT be compared with term insurance. Because only two equal products can be compared, not unequal products. In my view, when somebody takes term insurance, it should invariably run into crores and not just 10 lakhs or 15 lakhs because a person is insuring 30 years of productive income life. IT IS NOT RIGHT TO COMPARE TERM INSURANCE WITH JEEVAN ANAND - RATHER LIC TERM INSURANCE SHOULD BE COMPARED WITH TERM INSURANCE OF OTHER COMPANIES - THAT'S THE RIGHT APPROACH. And talking about commissions, don't you as a CFP charge your clients for your fancy excel sheet calculations? Then why grudge the agent's commissions?
I appreciate your duty and you doing a good job. But don't berate your competitors or other companies - that's not the hallmark of a true professional. Thanks.
Hi,
DeleteI am NOT doing CFP job and just trying share my knowledge on my website alone.
I am trying to explain that Jeevan Anand does not solve most the people's insurance requirement and if want similar benefits then you can go for Term Insurance+PPF as secure as LIC only.
I am not trying compare LIC vs private company's claim ratio and everyone knows LIC is most trusted company.
Giving Wealth to Nominee at death is not good reason to go for Jeevan anand and that too also 10-20 lacs will be less.
Most of the Analyst also believes that main Endowment policy or moneyback policy does not fit into finacial planning or one's insurance requirement.So we should go for only term insurance when it comes to insurance.
I did not compare it with MF because i know returns are not guaranteeing.
I have used Fixed deposite as example to get good returns after 15 years with death benefits of Jeevan Anand also.
I know many agents not just one who does not sell term insurance policy.I am not telling all are doing same thing.
I am still saying my comparison is right
Jeevan anand(Investment+Insurance) <= Term Insurance +PPF(Investment+Insurance).
we should be talking about individual requirement of financial plannig along with insurance need. then only we can take decision which combination of product suites it better. I am confident that regular insurance policy does not fit in most of the case.
Yes, we should be having term insurance in crores also if you huge liability like home loan+2 kids study+2 kids Marriage. It should not be just income replacement but should be able to fulfill all pending tasks from your side. I don't think regular policy can fulfull this need alone.
regarding Commission:CFP upfront asks for commission from you and give advise while any insurance agent gets commission from insurance premium. just to add, now SEBI stop giving commission to MF agent so they almost stopped selling MF.but customer got benefitted from entry load removal. but insurance companies gives 30% commission from 1st year premium and less from 2nd year onward.
if you can tell me why LIC does not bring online term insurance product where it can pass commission benefits to end user? (just i am eager to know)
I hope that I have given convincing answers to your queues.
Thanks,
Jigvishu
I respect your views, have nothing to argue with you, to each his own. My clients know what I am talking about and are happy with my advice. Term Insurance is good. PPF is good. Jeevan Anand is good. Mutual funds are good. Every instrument has its own value. In fact, I tell all my clients to invest in PPF but since there is a maximum limit of 1 lakh on it and people have different reasons in life to invest much larger or smaller amounts, LIC comes into the picture. Anyway, no point arguing on this forum, neither of us are gaining anything out of it.
ReplyDeleteAbout online term insurance from LIC - the reason for its delay is the proper conduct of medical tests. There is a concept in insurance known as "medical underwriting" and although a person would be "financially fit" to buy a term insurance policy, he may not be "medically fit." If you look through most of the online term insurances available today, they are being blatantly sold without conduct of medical tests - and this leads to violation of medical underwriting rules. A 50 year old person may suddenly buy a 5 crore policy online without conduct of medical tests and he dies at 60 due to cancer. Since the fact that he was suffering from cancer was hidden from the insurance company at the time of purchasing the policy, the insurance company cancels the claim. Who suffers? His dependants. Private companies are going wild selling online term insurance and fooling the Indian public. LIC has its own standards as a company and cannot get into a business just for the heck of it. When it finally comes out with online term insurance, there will be mandatory medical reports required to be submitted to the company. Private companies want to be LIC but the fact of the matter is, they will NEVER be LIC! Not in the next 100 years. So, this delay in online term insurance has got nothing to do with commissions!
Will not comment any further. Thanks for your replies.
Thanks for in-depth discussion..I really appreciate it.
DeleteTrue, We need to look at people's requirement for suggesting product based on risk and need.
Nice to know reason for delaying online version on LIC term insurance. I also suggest lots people to go for compulsory medical test for private companies's online term insurance and go for old and reputed private companies only.
I expect some discount in online plan from LIC because Commission will be not be there...
Yeah, There is no second thought about LIC's Value and market Leadership.
Thanks,
Jigvishu
Hi Annonymous and Jigvishu,
ReplyDeleteNice to see both your views and stand points. I am a working men at age 34.I want to ask one opinion
as I saw a statement from Annonymous that with the private companies online policies there might be geopardy while settlement. When comparing for the pure term policy (my main purpose of this policy is to purely act a revenue replacement for next 35 years for my family).For a SA of 50lakhs the lic amulya jeevan's yrly premium is Rs 12850 where as HDFC click2 protect is Rs 5625.For the year of 2010-2011 LIC claim to settlement ratio is 97.03 vs HDFC 95.41. So is it not better to go for HDFC than LIC for the same policy?
Pls share your views on this. Again I know that this is little different discussion than yours?
Sorry for delayed response,I think IRDA's rule are really good.
DeleteSo you have not hide any details then no company can reject your claims..and you are asking which one is better HDFC or LIC then I will suggest HDFC life click 2 project because it's more than 10 years old company and plan is good....go for medical check up even if they do not ask for it.
Hi,
ReplyDeleteMy age is 33 and I have Jeevan Anand Insurance for 5 lacs and Premium is high. Can I go for Term Insurance by surrendering the Jeevan anand Policy for hish SA value?
Please suggest.
Thanks,
Hi Surendranath,
Delete1st thing, Go to term insurance immediately for adequate sum assured amount whether surrender Jeevan Anand or not. You can consider online term plan also.
2 If you have started or completed 2-3 years then you can surrender it or there is one more option whether you policy will continue without paying future premium because if you surrender then you will not get much money immediately. and Only 3-4 years are pending in maturity then you can continue it further..
but Don't delay taking term plan.
Thanks JigVishu.. After reading the Anonymous comments of the agent, it looked to be like he was debating only because his Roji-Roti comes from selling Endowment and Money-back schemes. But with the mathematical explanation that you have given, I am totally convinced that Term Insurance + PPF makes sense.
ReplyDelete