Deciding Between LIC Jeevan Anand Policy and Max Life Insurance ULIP Plan: A Financial Engineer’s Perspective
Shall I surrender my LIC Jeevan Anand policy and Max Life Insurance ULIP plan with which I have been associated for the last 4 and 2 years respectively? This decision requires a deep dive into the specifics of both policies, particularly focusing on the returns and investment options available. In this analysis, I will compare the LIC Jeevan Anand policy, specifically Plan 815, with a ULIP plan from Max Life Insurance, using a financial engineer's perspective to evaluate the potential.
Details of the LIC Jeevan Anand Policy (Plan 815)
The LIC Jeevan Anand policy (Plan 815) is a participating, non-linked plan that offers an attractive combination of protection and savings. Here is a detailed breakdown of the policy:
Product Summary
The Jeevan Anand 815 Plan provides financial protection against death throughout the policyholder's lifetime. In case of the policyholder's survival, the policyholder will receive a lumpsum amount at the end of the selected policy term. Additionally, there is a provision for payment of a lumpsum if the policyholder survives the term of the policy.
Premium Payment Mode
The premium can be paid yearly, half-yearly, quarterly, or monthly. The policy can also be set up for ECS (Electronic Clearing System) payments for convenience.
Term
The policy term can range from 15 to 35 years, making it suitable for a wide range of age groups.
Minimum and Maximum Entry Ages
The minimum entry age is 18 years, and the maximum entry age is 50 years. The maximum maturity age is 75 years.
Sum Assured
The minimum sum assured is 100,000, and there is no maximum limit based on income. A maximum accidental death and disability benefit rider is available up to age 70.
Policy Benefits
On Death
If all due premiums have been paid, the death benefit provided will not be less than 105% of all the premiums paid as of the date of the premium mentioned above, excluding service tax, extra premium, and rider premiums if any.
On Survival
The basic sum assured along with vested simple reversionary bonuses and any final additional bonus shall be payable in a lump sum upon survival to the end of the policy term, provided all due premiums have been paid.
Surrendered Value
The policy can be surrendered for cash if at least three full years' premiums have been paid. The guaranteed surrender value during the policy term will be a percentage of the total premiums paid, net of service tax, excluding extra premiums and premiums for riders if opted for. This percentage depends on the policy term and the policy year in which the policy is surrendered.
Loan
A loan can be availed under the policy subject to the company's terms and conditions.
Income Tax Benefits
Premiums paid under this plan are eligible for tax rebates under Section 80C, and the maturity benefits are tax-free under Section 1010D.
Cost-Benefit Analysis for a 30-Year-Old Male
Assuming a 30-year-old male with a requirement of 10 lakhs assured, let's analyze the benefits and costs associated with the Jeevan Anand policy compared to investing the same amount in shares or mutual funds. This analysis will be based on the first-year premium payment of 30,766, which includes tax.
Investment in Jeevan Anand Policy
The total premium for 35 years would be 30,766 * 35 1,076,810. The policy promises a basic sum assured of 10 lakhs, but it's unknown what happens to the remaining premiums. These premiums are likely reinvested in the policy or allocated to different funds managed by LIC.
Alternative Investment in Shares or Mutual Funds
Assuming a compound annual growth rate (CAGR) of 18%, the initial investment of 30,766 can grow over the years.
After 5 years, the investment can grow to 60,000, a double of the initial amount. After 10 years, it can grow to 1,20,000, a double of the 60,000. After 15 years, it can grow to 2,40,000, a double of the 1,20,000. After 20 years, it can grow to 4,80,000, a double of the 2,40,000. After 25 years, it can grow to 9,60,000, a double of the 4,80,000. After 30 years, it can grow to 19,20,000, a double of the 9,60,000. After 35 years, the investment can grow to almost 40,00,000, a double of the 19,20,000.What Does LIC Do with the Remaining Premiums?
Using the investment, LIC owns stakes in several leading companies such as Reliance, HDFC Bank, TCS, and ITC. These investments could potentially yield substantial returns, which might not be clearly visible to the policyholder.
Conclusion
The decision to keep or surrender the policy depends on your risk tolerance, investment goals, and the potential returns offered by the alternatives. As a financial engineer, I prioritize my returns based on the "time to double" capital. Given the substantial growth potential in alternative investments compared to the assured sum under the policy, it might be more prudent to reinvest the premiums and take advantage of the market's potential.