Jeevan Vaibhav a good option to park your surplus

LIC’s new launch Jeevan Vaibhav is a non-unit linked single-premium policy. It is basically designed as an investment-oriented policy and the risk cover will roughly be double your investment. The fixed term of the policy is 10 years and the same risk cover continues throughout the term.

 DEATH AND MATURITY BENEFITS: In case of death during the policy tenure excluding the last policy year, only the basic sum assured is payable. In case of death during the last policy year, the sum assured along with applicable loyalty addition would be payable. If the plan matures, the sum assured along with the loyalty addition will be paid. The sum assured is fixed and depends on single-premium paid by you.

 But the loyalty addition is not guaranteed and depends upon the corporation’s experience. Loyalty addition is declared policy-wise every year after valuation of the surplus. As per previous experience, the corporation has declared a loyalty addition Rs 50 to Rs 100 per Rs 1,000 sum assured for policies with similar term.

 THE LIQUIDITY ASPECT:  Like all other conventional single premium plans, loan is allowed after the completion of one year. The plan can also be surrendered after the same period. But please note that surrendering an insurance policy may eat up a portion of your capital also. So take the policy only if you can stay invested till maturity; surrendering the policy in  middle of the term will not be beneficial at all.

 ENTRY AGE AND MINIMUM-MAXIMUM LIMITS: The policy can be bought for age group of eight years (completed) to 65 years (nearer birthday). The minimum sum assured is Rs 2 lakh, which may be enhanced in multiples of Rs 10,000. The minimum premium for base sum assured, inclusive of service tax and surcharge (approximately @3.09 per cent), will range from Rs 98,500 (approximate) to Rs 1,09,500 (approximate), depending upon the age of the life to be assured. There is no upper limit of investment.

 RETURNS: The guaranteed returns from the plan will vary depending on your age. The effective return is higher at younger age and goes on diminishing as the age goes up – the exact reverse of the banking perception. Nevertheless, it will range between10.34 per cent to 8.25 per cent. But, note that there is rebate of 0.2 per cent on tabular premium when your sum assured is above Rs 3,90,000 and 0.3 per cent if the sun assured is above Rs 5,90,000.

 DRAWBACKS

 The biggest drawback of this plan is that it will not give you full income tax benefits. As per the Finance Bill of 2012, the deduction from your income under Section 80C for premiums paid on life insurance policies issued on or after April 1, 2012, shall be available only to the extent of 10 per cent of the capital sum assured.  Also Section 10(10) D of the Income Tax Act will not be applicable for the same reason and your net earnings will be taxable at the applicable rate. However, the death benefit under any plan is always tax-free under Section 10(10D).