LIC's Jeevan Saral is a simple and attractive insurance product. But take a look at the projections given by Agents and the real illustrations on LIC's website.

The Agent says, "Invest in LIC’s Jeevan Saral, Save Rs 2000/- per month, Get Rs 5 Lakh cover, Get Tax Free Returns, Returns after 10 years is Rs 4.2 lakh, 15 yrs: 8.8 lakh, 20 yrs: Rs 16 lakh"

Vow! That’s a 10% solid return. Add to it being tax free and also covering a risk of Rs 5 lakhs!

If all of it is true, why should you bother about any other financial product? Why even take any risk of a stock or the outperforming mutual Funds? As LIC confidently says in its branding campaign, Kahin aur kyun jaana?

But let’s go on to LIC’s website and learn a bit more about Jeevan Saral. Link

It’s a simple and straightforward product. You simply need to choose the amount and mode of premium payment. The plan provides financial protection against death starting with 250 times your monthly premium. The Maturity Sum Assured depends on the age at entry of the life to be assured and is payable on survival to the end of the policy term. It also offers the flexibility of term and a lot of liquidity.

As per the illustration, if you pay Rs 4704/- every year, you get a starting death cover of Rs 1 lakh (250 times the monthly premium of approx Rs 400/-).

At the end of the 10th year, the maturity proceeds as per the illustration is Rs 50360 when the projected investment return of the Corporation is 6%. When the returns is 10%, the return is Rs 61360/-

This essentially translates into an IRR of 1.2% and 4.7% for the policyholder. As far as I know the investment yields of Insurance Companies is around 6-8% only.

The above example also shows that when the Insurer is earning 6% on it’s investments, the yield for the customer is around 1.2%.

Similarly when the investment yield of the insurance company is 10%, the return for the customer is 4.7%.

Can we say that approx. cost of your investments in an Insurance company is 5%?

Note from LIC’s website: The non-guaranteed benefits in above illustration are calculated so that they are consistent with the Projected Investment Rate of Return assumption of 6% p.a.and 10% p.a. respectively. In other words, 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 6% p.a. or 10% p.a., as the case may be. The Projected Investment Rate of Return is not guaranteed.

Loyalty additions will depend on future profits and as such is not guaranteed.

Related links to above story

You may be interested in the following pages on our site:

• Product-Review/lic-jeeval-saral.html
• Product-Review/lic-jeevan-saral-plan.html
• Product-Review/lic-jeevan-nischay.html
• Product-Review/lics-jeevan-vriddhi-a-review.html
• Product-Review/lic-new-product.html

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