The Life Insurance Corporation has launched a brand new insurance product -- Jeevan Anand, a with-profit assurance plan. With the emergence of stiff competition from the new private players in the field, such LIC products are bound to be very attractive and beneficial for the buyer. Therefore, it is necessary to examine this one under a microscope.

Basically, the plan is a combination of the whole-life and the most popular endowment-assurance plans. In other words if the death of the life assured occurs --

a) during the premium paying term of the policy, the pre-decided sum assured along with all the vested bonuses until death will be paid by LIC to the nominees or legatees of the insured person.

b) if the insured person survives the term of the policy,

• he will be paid the pre-decided sum assured along with all the vested bonuses until the end of the term of the policy and
• his nominees or legatees will be paid an amount equal to the sum assured payable on his death. No bonus is paid on death after the premium paying term.

Simple reversionary bonus accrues during the premium paying term and is payable at the end of the premium paying term or on earlier death along with final additional bonus, if any.

Loans

Loans will be granted against the surrender value of the policy after payment of premiums for at least three years. Interest on such loans will be fixed by LIC from time to time.

Accident benefit

The double accident benefit is available during the premium paying term and thereafter up to age 70. The premium for this has been built into the tabular premium rates. The maximum accident cover available under this plan will be Rs 5 lakh (this limit excludes accident benefit under other plans).

Rebates

Rebates or discount on premium rates are available as per the table.

Restrictions

The following restrictions will apply to policies under this plan.

• Minimum age at entry: 18 years
• Maximum age at entry: 65 years
• Maximum age at the end of the premium paying term: 75 years
• Premium paying term: 5 years to 57 years.

Comments

During your earning life it is prudent to insure both against untimely death but also against longevity. A little complicated? Let me explain.

Suppose you are 30 years of age and require modest amount of Rs 5,000 for your monthly expenses. You desire to retire at 60 and provide for your after-retirement life by systematically saving a certain amount every month to ensure that you can continue your present lifestyle.

Assuming that the average inflation rate is modest at only 4 per cent, during these 30 years, you find that the purchasing power of Rs 16,217 would be the same as that of Rs 5,000 at present.

Assuming the after-tax rate of returns at that stage is 7 per cent p.a., the same as of now, you will require a capital base of about Rs 27,80,000 (7 per cent of 27,80,000 = Rs 194,600 annually = 16,217 monthly).

This capital base appears huge, but it does not provide for either inflation or further reduction in returns during your long retired life.

Unfortunately, you are not certain how long this will be but you are definitely certain that you will require a huge capital base. In order to prune its size, you are ready to eat into your capital during your post-retirement life, slowly and steadily, until it becomes nil on the date of your demise. In order to assess the size of the capital required, let me safely assume that you will live for 100 years of your age.

Happy? No, I am not. You will require to have a capital base of around Rs 44 lakh (Rs 4.4 million), to see you through. I am sparing you from the mathematics, but this is the correct figure. When you are celebrating your 100th birthday, the kitty will be empty. You will be leaving nothing for your progeny.

I will not be complacent even with this provision. It will provide for only the inflation and not for further reduction in rate of returns. Moreover, into every life, a little rain does fall. There is no provision for rainy days.

In the end, let me repeat my often repeated observation. Every product has a cost. Do not buy the product if you find that you do not need it. In other words, if you find that there is enough money around with your family, so that a) in the case of your early death, other members would be able  to continue with their current life style or b) you will be well taken care of in case you live long, do not buy an insurance product.

Jeevan Anand is a product that offers a double-insurance, providing for not only untimely demise but also undue longevity.

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