Saturday, November 14, 2009

Jeevan Nishchay - A Review

Jeevan Nischay is the latest product from India's largest insurance company - Life Insurance Corporation (LIC) of India. It is a single premium closed ended plan falling under the special plans category and similar to the very successful Jeevan Astha. This new policy will be sold to ‘existing‘ customers of LIC and will be sold for a limited period until end of March 2010. Here is a critical review of Jeevan Nishchay.

Let us look at the benefit illustration for a 35 year old opting for a single premium of Rs.25,000 and a term of 10 years.
  1. First Year Death Benefit: Rs.1,25,000
  2. Subsequent years Death Benefit: Rs.44,674
  3. Maturity Sum Assured: Rs.44,674

The basic purpose of any life insurance policy is to provide financial cover to dependents. For Jeevan Nishchay, this is only a mere Rs.1,25,000, and that too only for the first year. For subsequent years, this is only Rs. 44,674!

Let us now consider Jeevan Nishchay as an investment vehicle. If the person survives the 10 year term, he would gets Rs.44,674 (Rs.53,609 with a non-guaranteed loyalty addition). In 10 years, the Rs.25,000 has not even doubled (a bit more than double with the addition of non-guaranteed variable component).

To understand this further let us take two scenarios:
  • Scenario 1: The insured person dies in year 8. The sum assured is Rs.44,674.
  • Scenario 2: The insured person survives the 10 year term. The maturity value is Rs.53,609 (with loyalty addition)
Now consider this with a term plan from Max New York Life Insurance. For a 35 year old male, for a sum assured of Rs.2,50,000 and term of 10 years, the annual premium is Rs.1,097.5. The remaining Rs.23,902.5 is assumed to be invested in a debt instrument (bond/ debt fund/ PPF) yielding an average of 8% per annum. The premium amount for the term plan is deducted from this every year over the 10 year term.
  • Scenario 1: The insured person dies in year 8. The sum assured is Rs.2,94,242.
  • Scenario 2: The insured person survives the 10 year term. The maturity value is Rs.36,802.

The two cases are explained in this excel sheet:

Term plan + Debt option v/s Jeevan Nishchay:
  1. The sum assured for Term plan + Debt option is almost 6 times more than that for Jeevan Nishchay
  2. The maturity value for Term plan + Debt option is lesser, for the assumed returns of 8%. (if the investment is in equity, which can provide returns in excess of 12% per annum over 10 years, the amount becomes more than that provided by Jeevan Nishchay)

For the stated objective of investment plus insurance, Jeevan Nishchay does not seem to be attractive enough. It looks like a desperate attempt  to leverage the brand and the tax saving season with this product. The fact that it is sold to existing customers only, does not seem to be anything more than a marketing/ selling gimmick. Jeevan Nishchay offers very low sum assured value and has low/ moderate returns and hence gets a BIG thumbs down!!

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are  requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.


The Commentator said...

The point you are making holds true for any insurance policy where there is maturity benefit. (Term insurance + Separate investment) is considered better than vanilla insurance scehemes. Experts say insurance and investment don't gel well. Nothing specifically good or bad about Jeevan Nischay. I mean the same theory holds good for Jeevan Aastha etc. Also you should be more specific about debt instruments: assured return or not, most importantly tax implications. Always mention Post-tax returns for fair comparisons.

Ganesh said...

Thanks for the comment Commentator.

I agree with all the points that you have mentioned - (1) holds good for all insurance policies (2) term insurance + other investment is always better (3) nothing that bad (or good) about Jeevan Nishchay.

Perhaps my post echoes my dislike for such policies. But i hate the way it is sold and marketed. How many "investors" know about such products when they buy it? So the attempt is to throw some light on how we can do a high level analysis before jumping in.

Personally i felt that for insurance, Jeevan Nischchay is too costly, and for investment, non guaranteed returns are unfair.

I take your points on being specific on debt instruments and post tax returns. Shall attempt to cover those in the future.

Thanks for stopping by and keep commenting. :-)