A paradigm of Investing in LIC Policy
Let’s start the discussion on investment decision in LIC policy is good or bad by taking an example of Jeevan Anand (815), the most famous policy of LIC and compare the return of the Policy which is insurance and investment mixed policy with LIC’s eTerm insurance plus PPF. You will get tax benefits under section 80C for both the options. The details pertaining to Jeevan Anand (815) are as follows:
- Sum assured: ₹ 25,00,000 (A)
- Policy term: 30 years (B)
- Annual Premium: ₹ 89,837 (C )
- Approximate Maturity including Bonus: ₹ 89,25,000 (D)
Now let’s assume that we have taken eTerm insurance of ₹ 25 lakhs for 30 years for which the premium works out to be ₹ 4,307 per annum. The remaining amount i.e. ₹ 85,530 (₹ 89,837 – ₹ 4,307) is invested in PPF which is currently fetching interest at 7.90% per annum.
- Annual contribution towards PPF: ₹ 85,530 (P)
- Maturity amount of PPF: ₹ 1,02,64,705 (M)
- Annual Premium of e-term: ₹ 4,307 (E)
- Maturity amount of e-term: ₹ 0 (S)
Difference (M+S-D): ₹ 1,02,64,705 – ₹ 89,25,000 = ₹ 13,39,705
As per the above comparison, it is prudent that opting for PPF plus eTerm would fetch you ₹13.40 lakhs more thus LIC is good for insurance but not for investment.
Now the second question arises if returns from the LIC are so bad then why we Indian opt for LIC policy as an investment?
Social Obligation:ly graduated was in search of a job. His uncle who is also a LIC adviser has helped him to get a decent job. Now the social obligation has started and my neighbor paid that off by taking two LIC policies which even they knew were irrelevant and would not help to attain any of the financial goals. But because of the help, they got from the uncle they had to take the policies.
Sovereign Guaranteeof Capital is more important than Return on Capital”. Being backed by Government, LIC has implied Government Guarantee and thus no chances of default. People consider buying LIC policy is similar to making FD in SBI & not in some private banks, even though the returns are as bad as 4% to 5%.
Recommended Read LIC Tech Term Plan No 854 – Online Term Insurance Plan