LIC has just launched a new product Bima Account – I and with highlighted advertisement on "Guaranteed return of 6% p.a. for whole of the policy term". Isn't that attractive and that too with the back of LIC – one of the most trusted name in insurance sector of India.
But before you sign application form, just read the following contents carefully. I'm quoting one line of this plan from the official website of LIC of India.
Under this plan, the premiums paid by you, after deduction of charges, will be credited to the Policyholder’s Account maintained separately for each policyholder.
Hold on friends. What is this statement – "after deduction of charges"? Let's explore all the charges of this plan.
a) Expense Charge :
|Expenses charge (including commission)|
2nd & 3rd Years
This means the company will deduct 27.5% of your premium as first year charges and thereafter as mentioned in the above table.
b) Mortality charges: This amount is further deducted from the premium to give you insurance cover. There will be service tax+cess also on this charge.
Now, after deducting all the charges + service tax, your balance money will be eligible for guaranteed return. I think you got my purpose of writing this article.
Another charge involved is "Alteration charge". Although this is not the basic charge involved with this policy, but LIC will deduct Rs.50 on your every request for alteration like change in mode of payment etc. Seems some sort of policy admin or handling charges.
Let's take official illustration of this plan now.
PRODUCT FEATURES :
1. Name of the Product: LIC's Bima Account – I
2. Unique Identification No.512N263V01
3. Amount of Instalment Premium:10000
4. Policy Term :7 Years
5. Age LA:30 Years
6. Premium Paying Term:7 Years
7. Sum Assured :100000
8. Mode of Premium Payment :Yearly
9. Current Service Tax rate10.30%p.a
Illustrative Account Value on Maturity:
Total Account Value of Policyholder at maturity @ 6% p.a (Rs.)78938
Total Account Value of Policyholder at maturity @ 10% p.a (Rs.)89240
Click on following image to get zoom and clear image in new window.
It's clear from the above table, that even if you invest in PPF i.e. without any risk, you'll get more amount at maturity. For risk cover, we've better options like term insurance.
So, when next time your family trusted LIC agent calls you for LIC Bima account, don't forget to ask him / her to explain all these charges in detail.