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LIC has come up with a new conventional pension plan naming "LIC New Jeevan Nidhi". Actually this year LIC has wished "happy new year" by launching 2 products – LIC Flexi Plus and LIC New Jeevan Nidhi.
It has become a need of the hour for the life Insurance companies to reconstruct their pension plans which should conform to the new guidelines of IRDA. To have a basic understanding of those guidelines read. There's 360 degree change in the pension plan space as now on wards you will be pitched with pension plan when you are looking for an instrument purely from retirement planning point of view. It has become compulsory now for any pension plan to distribute the surrender/maturity proceeds only in the form of annuity.
How LIC New Jeevan Nidhi works? In short
LIC New Jeevan Nidhi is a Traditional / conventional with profit pension plan which provides death cover during deferment period and pension/annuity on vesting. Annual premium will be decided as per the investors age,health, sum assured and policy term selected. Investor has to pay premium for the full term or single premium and at the vesting age whatever be the fund value it has to be used to purchase immediate annuity. And the annuity will be at the then annuity rates. He may exercise the option to commute the fund value ( at the applicable Income tax rates which is 33% as of now) and rest has to be used to purchase annuity. Fund value will be Sum assured plus the guaranteed additions *plus participating profits (non guaranteed)** in the shape of simple reversionary bonus . One may also use the fund value to purchase another single premium deferred pension product if he satisfies the eligibility criteria of the same.
*Guaranteed additions : @ Rs 50 per thousand Sum assured for each completed year for first 5 years.
**Participation in profits : From 6th year onwards and will be as per corporations experience.
Benefits / Features of LIC New Jeevan Nidhi.
Vesting benefit: Use the maturity proceeds to either Purchase immediate annuity or a single premium deferred pension plan.
Death Benefit :
Death during the first 5 years of policy : Nominee will get Basic sum assured plus accrued guaranteed addition as lump sum or annuity or partly as lump sum and partly as annuity.
Death after the first 5 years of policy : Nominee will get Basic sum assured plus accrued guaranteed additions plus simple reversionary and final additional bonus if any as lump sum or annuity or partly as lump sum and partly as annuity.
Discontinuation of Premium:
You may discontinue paying the premiums or may even surrender the policy anytime after 3 years payment of premium .But in that case also you will have to compulsorily purchase immediate annuity or a single premium deferred pension plan with the paid up / surrender value.
Other Features of LIC New Jeevan Nidhi.
Lets analyse the illustration of LIC New Jeevan Nidhi (from LIC website ) Click on the image to expand
What this illustration of LIC new jeevan nidhi says is that if a healthy non smoker person of 35 years of age buys this plan with sum assured of Rs 1 lakh then his premium exclusive of service tax would be Rs 4121/- p.a. Now if he continues paying the premium till vesting age of 60 years the product will be able to generate Rs 125000/- (@4% p.a ) or Rs 233500/- (@ 8% p.a). And if this maturity proceeds be used completely to buy annuity for life than it will be generating Rs 11688/- p.a or Rs 22533/- p.a. respectively as per current annuity rates .
Further LIC specifically says: in preparing this benefit illustration, it is assumed that the Projected Investment Rate of Return that LICI will be able to earn throughout the term of the policy will be 4% p.a. or 8% p.a., as the case may be. The Projected Investment Rate of Return is not guaranteed.
Now if I analyse the figures and calculate the net annualized return …it comes out to be 1.57% (@4%) and 6.22% (@8%). If I take into account the service tax also then returns are bound to come down. As the returns are not guaranteed and being an endowment plan which is very expensive in terms of distribution cost so it would not be wise to assume the much of returns. It should be in the middle of both the extremes assumed.
Should you invest in LIC New Jeevan Nidhi?
Frankly, I am not in favor of any endowment plan in the accumulation stage of retirement planning. In fact I am always of the view that investments should be flexible enough to be taken action on as and when required. I may favor some immediate annuity plan at distribution stage but that too looking at the other financial requirement of the client. It would be very difficult to achieve one's retirement goals if the money grow at 4-6% rate when inflation is hovering around 7-8% One needs an active management of finances at least during accumulation stage to generate enough corpus which helps the retired to maintain his lifestyle and other expenses.
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