New LIC Scheme : Insurance up: State owned Life Insurance Corporation of India has come up with a new single-premium plan, which assures customers to return back annual returns of Rs. 12,000 for their life on a one-time investment.
This plan, which combines the security of the nation’s largest life insurer and the convenience of a one-time payment, has been received with great enthusiasm from retirees who want the utility of guaranteed lifetime income without having to be burdened with regular premium obligations.
This Product is specifically designed with retirees, who are looking for income for life, and long-term financial planning at heart and is LIC’s answer to the growing market need for simple income solutions amid the complexity in most financial environment.
For prospective investors, it is critical to know the composition, pros, and limitations of the plan as well as how you could potentially invest your money – before you place significant funds into this lifetime income option.
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New LIC Scheme Features of the Single-Premium Lifetime Income Plan
The plan, introduced a few days ago, has a few things that make it good different from conventional insurance and investment products:
Single Premium Option: As opposed to the traditional options, which involve premium payments at regular intervals, this plan demands a one-time lump-sum payment, with no necessity of paying premiums henceforth.
Here’s what the Guaranteed Lifetime Returns mean: The policy ensures that policyholder receive annual payouts worth Rs 12,000 throughout their life, even if there are some market conditions or macroeconomic conditions.
Death Benefit Protection: In addition to the income benefits, the plan offers life cover to ensure your nominees get the sum assured in case of untimely death.
Tax Benefits: Investments are eligible for tax benefits under section 80C of the Income-tax Act, 1961, and income is eligible for tax benefits under section 10(10D) of the Income-tax Act, 1961 and conditions mentioned under section 10(10D).
Loan Facility : Policyholders can avail Loan against the policy, thus making the plan liquid without making the policy surrender after 3 policy years.
Return of Purchase Price Option: Under another option in the plan, nominees receive the purchase price of the product in case of the death of the policyholder, along with the amount assured.
According to Rakesh Sharma, a financial advisor with 22 years of expertise in insurance products: “This plan provides the policy holder with a fixed income that he can easily predict as an outcome of a one-time capital investment which would remain constant irrespective of how long the policy holder survives.
It has particular value for people who are worried about outliving their savings — an issue that is becoming increasingly common as longevity increases.”
New LIC Scheme Amount Invested and Return Compute
The most common query about this strategy is how much money do I need in the beginning to generate an income of Rs. 12,000 every 12 months? The rate is as per LIC’s premium structure for this plan:
For a 50-year-old between the standard plans a one-time deposit of Rs. 1.65 lakh would fetch an annual income of Rs. 12,000 (effective yield of 7.27% per annum).
But the actual investment needed depends on a few key factors:
Age at Entry: A company has to make a larger investment for a younger person to purchase the same amount of income because the company will have to pay it out for more years. In the reverse, older applicants require less investment.
Gender: Female is usually cheaper because the average life expectancy is longer.
Payout Mode: Though Rs. 12,000 is the annual payout, policyholder may chose to receive the payouts quarterly or monthly and the effective yield would be closer.
Other Rider Options: Optional riders like AD&D or CI need slightly higher premiums.
Sunita Patel 57 yrs of age says “I had taken this policy very recently, 4 months back when I was 58 years old, my premium was like Rs.146,000 that I had invested one time, per year I get 12,000 as annuity.
What attracted me was the simplicity — one payment, then guaranteed income without concern over market conditions or decisions on reinvestment.”
New LIC Scheme Eligibility and Application Process
The insurer, LIC, has set specific age limits to reach the right ‘eligible’ target groups for the scheme:
Age Limit: The youngest age of entry is 40 years and the oldest age of entry is 80 years. Focusing on mature investors is in keeping with how the product is being positioned, as a retirement and income product.
Health Features: Application process minimizes the hassle with limited health questions instead of complex medical tests for investments up to Rs. 3 lakhs.
KYC Documents: Normal Know Your Customer documents, comprising Aadhaar, PAN card, address proof and any recent photographs.
Nominee Details: Nomination, as applicable, is mandatory at the time of application, which may specify more than one nominees and respective percentage share.
The application process is simplified as follows:
Step 1: Consultation and Illustration Talk to the LIC agent or visit a branch to get a customized benefit illustration based on your age, sex and the income you want.
Step 2: Filling up of the Proposal Form Fill up your Proposal Form providing personal details, nominee details and selecting plan options. The form can be submitted online on LIC’s portal or at branches.
Step 3: Submission of Documents Submit KYC documents, age proof, address proof and income proof for investments over and above Rs.
Step 4: Payment Processing Pay the premium amount one time with net banking, credit/debit cards, UPI or demand draft.
Step 5: Policy Underwriting & Issuance After verification and underwriting (which is accelerated for low investment amounts), you will receive your policy document issued, usually within 7 -10 working days.
Step 6: Sign up for digital services Open an account in LIC’s e-Service to manage the policy, as well as make corrections and payments online.
“Prospective applicants prefer the hassle-free issuing process as there are only a handful of senior citizens who are fond of paperwork,” says Ramesh Kumar, LIC development officer from Pune.
But retaining the benefit illustration is important as it shows, quite distinctly, the guaranteed income amount for the investment you’ve made.”
New LIC Scheme How It Stacks Up to Other Income Plans
Investors considering this approach should compare it to other investment opportunities to see if it makes sense before proceeding:
Senior Citizens’ Saving Scheme (SCSS): the scheme certainly pays higher interest rates (around 8.2% now) but there is a maximum limit of Rs. 15 lakhs and a tenure of 5 years (with options to extend) and not a lifetime income as in the case of LIC’s plan.
Post Office Monthly Income Scheme (POMIS: This gives monthly income over a five year horizon with higher effective yields, though not with lifetime guarantee and insurance component.
Bank FD’s – Provide lesser returns than this LIC plan especially for longer tenures and also reinvestment decisions to be made every few years.
Annuity Plans from Private Insurers: Some of them may offer good rates but they may not carry the kind of perceived safety that an Government-owned entity like the LIC would give.
Mutual Fund Systematic Withdrawal Plans (SWPs): More returns, but subject to market risks and no guarantee of the duration of income.
According to financial planner Deepak Mehta, “The beauty of this LIC plan is that it is simple, lifetime guaranteed and comes from India’s largest and government-backed insurer.
Sure, pure returns from investing elsewhere might be greater, but the peace of mind feature has value, for conservative investors, in essence.
New LIC Scheme Limitations and Considerations
Potential policyholders must carefully consider several key factors before taking the plunge:
Effect of Inflation: The Rs. 12,000 annual payout will remain constant for the entire duration of policy, for which the real purchasing power would reduce because of inflation.
Final Decision: You can’t turn back once you’ve purchased, and can’t cancel for 100% back on investment, which means once you’re in, it’s for the long-haul.
Opportunity Cost – Aside from the loan facility, the infused capital will be mostly illiquid and may lead to lost gains that could have been earned if funds were kept active elsewhere.
Changes in Tax Law: Although existing tax advantages make the plan attractive, the plan’s effectiveness can be affected by changes to tax law.
Alternative Requirements: It would be wiser to meet low health insurance or emergency funds than invest in this plan if a Low health insurance policy or emergency is the requirement of insured.
Retirement planning expert Anjali Mitra warns: “It is not a one plan fits all solution to retirement, but works better as a part of a diversified retirement portfolio rather than as a sole source of income”.
Optimally, there are other inflation-hedged income assets in place to accompany that guaranteed income stream to ensure that retirees can retain their lifestyle through retirement.”
New LIC Scheme Who Might Like This Plan?
The one-time premium life income plan is especially suitable for:
Conservative Retiree: Someone who places more value on the certainty of income during retirement than the potential of higher, but uncertain returns of market-based investments.
Financial Gift Planners: A person seeking to guarantee life-long income for a child or grandchild with a one-time investment, such as a parent or grandparent.
How You Can Use Your Inheritance Lump Sum Inheritance Financing: People who have inherited a lump sum and would like to turn a portion of it into guaranteed lifetime income.
Supplemental Income Seekers: Career individuals who are beginning to position themselves for retirement and securing multiple streams of income beyond employer pensions.
Wealth Legacy Planners: The attraction for people of wealth is the ability to couple estate distribution with guaranteed lifetime benefits for themselves.
Like all important financial decisions, you should consult with a qualified financial advisor to understand how this plan fits into your comprehensive financial situation and goals before investing a large non-refundable sum to secure lifetime income.
Rs. 12,000 guaranteed annual Lifetime income offering from one time premium payment sounds attractive, but not all the fingers in the pie could be sweet, hence it’s always good to know the pros and cons to set a realistic expectation and to know where it fits in your overall financial plan.
