LIC Jeevan Labh Review – Why Lot of People Ended Up Calculating Wrong Returns?

If you search “LIC Jeevan Labh review” on Google, a number of different results will pop up. You will find that every blogger has shown returns of 6%, 6.70% and even as high as 7%. But if you check the maturity value of LIC Jeevan Labh policy on LIC’s website, it shows entirely different picture.  The returns are hardly 5%. So, what is the catch that no one was able to recognize?

Even after showing tax-free returns of 7%, bloggers have rejected the policy. Trust me, if I ever find a policy that offers tax-free returns of 7% for long-term, I’ll blindly purchase it. However, the actual returns are not 7%, the policy will give returns of less than even 5%.

 

Before getting started with the review of LIC Jeevan Labh, let’s try to understand the basic features of this policy.

LIC’s Jeevan Labh is a limited premium paying, non-linked, with-profits endowment plan which offers a combination of protection and savings.

Limited Premium Payment Option – This means, you need to pay premium for a limited time frame. There are 3 options for limited premium payment option in the policy, i.e., 10 years/15 years/ 16 years.

How’s it different from term of the policy? – If you pay limited premium for 10 years, the policy will mature after 16 years. If you pay limited premium for 15 years, the policy will mature after 21 years. Likewise, if you pay limited premium for 16 years, the policy will mature after 25 years.

Non-Linked Means – The policy is not related to market volatility.

With-profits Endowment Plan Means – the company will declare bonuses for the policy depending on their profits in that particular year. This is the reason why the bonuses offered by LIC vary every year.

Combination Of Protection And Savings – In case of death, the nominee gets the sum assured and declared bonus (protection). In case of maturity, the life assured gets the maturity amount (savings/investments).

Eligibility Conditions And Other Restrictions:

  1.  Minimum Basic Sum Assured: Rs. 2,00,000
  2. Maximum Basic Sum Assured: No Limit (The Basic Sum Assured shall be in multiples of Rs. 10,000/-)
  3. Policy Term/Premium Paying Term: (16/10), (21/15) & (25/16) years

So, I have explained the basic features of the policy. But how do we calculate the maturity amount in LIC policies? Why every blogger ended up calculating the wrong maturity amount?

How Is Maturity Amount Calculated In LIC Policies?

The formula to calculate maturity amount in LIC policies is very simple –

Maturity Amount = (Sum Assured) + (Sum Assured * Term of Policy * Yearly Simple Revisionary Bonus)/1000 + (Final Additional Bonus)

Simple Revisionary Bonus is declared by LIC every year. It varies for different policies. You can check it out here –

https://www.licindia.in/Customer-Services/Bonus-Information.aspx

Simple Revisionary Bonus is declared as per thousand sum assured. Suppose, LIC has declared a Simple Revisionary Bonus of 50 per thousand sum assured. The total bonus amount that would be added to your sum assured for that year would be (assuming sum assured of 2 Lakhs) –

Simple Revisionary Bonus – (50/1000) * 200000 = 10,000 would be added as bonus amount for that year.

Final Addition Bonus is calculated as follows: (Final Addition Bonus declared per thousand sum assured* sum assured )/1000

LIC Jeevan Labh Example

Age – 30 Years

Premium Payment Term – 16 Years

Policy Term – 25 Years

Sum Assured – 2 Lakhs

Yearly Premium – 9,134

So, if we assume the same bonus ( Simple Revisionary Bonus of 50 per thousand sum assured) for next 25 years, what would be the policy’s maturity value?

Maturity Amount = (200000) + (200000*50*25)/1000 + (50*200000)/1000 = 4,60,000

Every blogger calculated the maturity amount as per the above formula and ended up in calculating wrong returns.

(I have assumed final addition bonus based on the policy term and premium amount. The value of the bonus goes up as the premium amount and policy term increases.)

The maturity amount payable is 4.60 Lakhs (as per the above calculations).

So, you pay premium of 9,134 for 16 years and get the maturity amount is 4.60 Lakhs after 25 years, the returns in the policy will be 6.50%.

You may argue that the returns will reduce as the bonus will reduce with every passing year. Yes, that’s a valid concern. Even then LIC is declaring better bonus rates for Jeevan Labh in comparison to other endowment policies, why?

Where Is The Catch?

First, let’s see the maturity value that LIC shows in their benefit illustration for the same premium and sum assured amount –

Do you think LIC will give you more than the maximum amount shown in the benefit illustration? I seriously doubt that.

Jeevan Labh Returns 

The returns in Jeevan Labh will not be calculated the way they’ve been calculated in other regular premium endowment policies. Since the premium payment term is 16 years and policy payment term is 25 years. Your entire bonus amount will be multiplied by 16/25 (Premium Payment Term/ Policy Term).

This is basically like a paid-up policy. In which, bonus is added on the basis of the number of premiums paid divided by the term of policy.

Here is how the maturity amount would be calculated:

Maturity amount = (Sum Assured) + ((Sum Assured * Term of Policy * Yearly Simple Revisionary Bonus) * (Premium Payment Term/ Policy Term)) /1000 + FAB

= 200000 + ((200000*50*25) *(16/25)) /1000 + (50*200000)/1000

= 200000 + 160000 +10000 = 3,70,000

So, if you get the maturity amount of 3.70 Lakhs after 25 years, the returns would be 5.30%

This is how the returns reduce in Jeevan Labh policy.

LIC Jeevan Labh Review

Finally, here is the LIC Jeevan Labh review.

The returns after 25 years are not going to be even 5.30%. Because there’s no chance of getting simple revisionary bonus of 50 per thousand sum assured for next 25 years.

Suppose you reduce the average simple revisionary bonus of 40 per thousand sum assured for next 25 years. Then, the maturity amount would be 3.38 Lakhs and the returns would be 4.80%.

Secondly, once you invest in the policy, there is no way of coming out of it. You will end up incurring huge losses if you try to exit in initial years. If you try to exit in later years, you would hardly be able to get your capital amount back.

The returns will reduce further in other 2 options -where the Policy Term/Premium Paying Term is (16/10) and (21/15) years.

The returns are not at all good and your hard-earned money will get stuck if you invest in this policy. Therefore, it is better to avoid it.

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