Jeevan Nidhi: A deferred pension plan with risk cover
Sun, 17 Jun 2012 23:38:04 -0600
LIC's Jeevan Nidhi is a 'with profit' deferred annuity (pension) plan
After the new norms of Irda, there are fewer pension plans left in the insurance industry. LIC's Jeevan Nidhi is one of them. Here we take a look at this product:-
FEATURES: LIC's Jeevan Nidhi is a 'with profit' deferred annuity (pension) plan. The plan provides risk cover during the deferment period and generate pension for the policyholder out of the accumulated amount (i.e. sum assured plus guaranteed additions plus bonuses) from the date of vesting (maturity Date).
BASIC CONDITIONS: The plan is offered to adults of 18 years (completed) to 65 years (nearer birthday) of age. Minimum term of the plan may be six years for single premium option and five years to 35 years under regular premium option. The pension may start from an age(minimum vesting age) of 40 years and the maximum age to start pension is 75 years. Premium payment is allowed through all modes of payment, but you may get a mode rebate of 2 per cent (on tabular premium) if you opt for yearly mode and 1 per cent in half-yearly mode.
ASSURED BENEFITS: It is a deferred annuity plan. For the first five policy years of the deferment period, the policy carries guaranteed addition @ Rs 50 per thousand sum assured. Subsequently, the policy participates in profits of the corporation and is entitled to receive reversionary bonuses declared every year.
DEATH BENEFIT: In the case of death of the insured during the deferment period, the beneficiary will receive the sum assured plus guaranteed addition and accrued bonus. In case of death after the vesting date (after the annuity starts), your fund is treated as per the
annuity option exercised by you.
BENEFIT ON VESTING: On vesting (maturity), the policyholder has the option to commute one-third of the fund (maturity proceeds). This fund includes the sum assured under the basic plan together with guaranteed additions, accrued simple reversionary bonus and terminal bonus, if any. As per the policy contract, the maturity proceeds after commutation (if opted) has to be compulsorily used for
purchasing annuity. So the policyholder has to exercise any one of the following options for annuity, which will decide the treatment of your fund after your death:-
>> Annuity for life : As the name explains the insured is paid an annuity as long he/she is alive. In this option nothing is returned to the nominee on death of the policyholder.
>> Annuity guaranteed for a certain period: Annuity is paid for a period of 5/10/15/20 as chosen by the insured irrespective of the fact whether he/she is alive. After the period the annuity is paid for life and no return on death.
>> Increasing annuity: The annuity is paid for life and is increased by 3 per cent every year, but nothing is returned on death of the policyholder.
>> Annuity with return of purchase price on death: The insured is paid an annuity as long as he/she lives. When the insured dies the purchase price (the fund) is returned to the nominee as death benefit. In my view, this is the best option.
>> Joint live last survivor annuity: The insured gets an annuity as long as he/she is alive; after his/her death 50% of the annuity is paid to the spouse as long as he/she is alive. On death of the spouse nothing is returned to the heirs.
OPTIONAL BENEFITS: The policy also gives you an option to take an additional term assurance cover (called TERM RIDER), subject to payment of an additional premium. The maximum amount of cover that may be allowed is equal to the basic sum assured subject to Rs 25 lakh under all policies of the life assured with the corporation taken together. A critical illness rider option is also available in the policy.
DRAWBACKS: The plan is not flexible at all and liquidity is not there at all. These are no loan facility and it cannot be assigned as collateral security also. In this plan, your capital fund gets locked entirely. Further, there has been a bad image of LIC as giving lower return.
When you invest in PPF, your interest gets added to the capital every year and you benefit from the power of compounding. But, there is no compounding effect in LIC’s bonus calculation. The bonus is calculated on the sum assured, per thousand-per year basis.
RETURN AND ADVANTAGES:Being a conventional type policy return on your investment is risk free, but it will vary as per your age at entry and the term taken by you. But, while maintaining the blame on LIC for giving lower return on investment, you must mind that bonus is calculated on the sum assured and not on the premium paid by you. So, if you take a policy at a younger age your premium is lesser than the sum assured and you return gets bigger. As such, through compounding effect is not there, the multiplier will work for you, if your policy term is longer.
Basic advantage of this plan is that, unlike PPF the term is adjustable as per your need and convenience. If you want you can even take annuity from the age of 40 years (but, I don’t suggest it). Further usual tax rebate is available under Sec 80CCC(1) on the premium paid by you and in case of claim by death nominee gets tax benefit under Sec 10(10D).
MY VERDICT: This plan is definitely not a substitute for other types of investments like PPF, mutual Fund or fixed deposits; rather it may be used as a good complementary investment. A good pension planning should have two parts – a fixed part (invest through Jeevan Nidhi and provide for a fixed annuity) and a flexible part (lumpsum investment in bank or postal MIS after retirement). So, if you are a young starter in career (preferably within the age of 35 years), this plan can be used for staring your pension planning along with a potential insurance cover (Opt for term rider for maximum permissible amount). Subsequently, you may start saving through mutual fund and other routes.
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