Investors were waiting for a product like Jeevan Aastha a new product from from the public sector behemoth Life Insurance Corporation of India. The insurance giant has already mopped up over Rs 2,000 crore and it is expecting to garner around Rs 25,000 crore before the issue closes on or before January 21.
However, is the ‘aastha' in the product justified. Experts said people seem to have many ‘‘ misconceptions'' about the product. Most common mistake is to confuse it with a FD, as the scheme offers guaranteed returns. For example, some people realised it’s an insurance products after insurance agents
started speaking about the premium and insurance cover, among others. Others got lost trying to make sense of maturity sum assured, basic sum assured, death benefit , guaranteed addition, loyalty addition, and so on.
Let us look at the benefits of the plan. LIC’s Jeevan Aastha is a single premium assurance plan which offers guaranteed benefits on death and maturity. The Plan is close ended and would be available for a maximum period of 45 days from the date of its launch i.e. 08.12.2008.
1.Eligibility conditions and other restrictions
a) Minimum Entry Age : 13 years (completed)
b) Maximum Entry Age : 60 years (nearest birthday)
c) Minimum Basic Sum Assured: Rs.1,50,000
d) Maximum Basic Sum Assured: No Limit
The basic sum assured shall be available in multiples of Rs. 30,000.
e) Policy Term : 5 or 10 years
f) Premium payment mode : Single premium only
2.Premium rates
Specimen Single Premium rates per Rs.1000 Basic Sum Assured for some of the ages are as under:
Age at entry Policy Term-5 years Policy Term-10 years
20 174.50 165.00
30 174.70 165.40
40 176.10 167.95
50 180.85 175.90
3.Rebate
High Sum Assured Rebates per Rs. 1,000 Basic Sum Assured :
Basic Sum Assured Rebate
Term – 5 years Term – 10 years
Below Rs.3,00,000 Nil Nil
Rs.3,00,000 to Rs.5,99,999 Rs. 2.00 Rs. 3.00
Rs.6,00,000 to Rs.11,99,999 Rs. 2.50 Rs. 3.50
Rs 12,00,000 and above Rs. 3.00 Rs.4.00
4.Loan
Loan facility will be available to you under this plan , after completion of one policy year.
5.Surrender value
The policy can be surrendered for cash after the policy has run for at least one year. The minimum Guaranteed Surrendered Value allowable is equal to 90% of the Single premium paid excluding all extra premiums.
Corporation may however pay Special Surrender value as applicable on the date of surrender provided the same is higher than the guaranteed Surrender Value.
The Special Surrender Value will be the discounted value of the Maturity Sum Assured and Guaranteed Additions accrued as on date of surrender.
6.Cooling-off period
In case one is not satisfied with the “Terms and Conditions” of the policy , the same can be returned within 15 days
However, the most key ‘‘ misconception'' is about the rate of return one will get from the plan. According to the LIC brochure, one will get Rs 100 per Rs 1,000 maturity sum assured per year for a policy of 10 years and Rs 90 per Rs 1,000 maturity sum assured per year for a policy for five years. According to insurance experts, this is where people make mistake of doing the simple calculation and assume that the rate of return is 9% for fiveyear plan and 10% for 10-year .
‘‘ When you are speaking about a rate of return from an investment, you don't speak about simple interest rate. It is always compounded annual growth rate. Only this rate would give you an actual rate of return from your investment ,'' says Mukesh Dedhia, director, Ghalla & Bhansali Securities . ‘‘ Also, since it is an insurance plan and the premium varies with age, the return would also vary accordingly. A younger person would get maximum return, while older person would get less.'' A 13-year-old (minimum entry age) who opts for a cover of Rs 1.5 lakh by paying a premium of Rs 24,668 would get around 7.32%, whereas a 60-year-old (maximum age) who pays Rs 29,145 as premium would get around 5.55%.
