LIC’s Jeevan Varsha: Appealing to some

Traditional insurance products such as endowment and money-back policies, which were on the backburner for the last few years, are now being relaunched by insurance companies.

While their absence was explained by the shift in preference to ULIPs, whose sales were pepped up by the bull rally, their resurgence now can be credited to the waning interest in equities. In this context, it comes as no surprise that LIC, after the huge successes of its single premium product, Jeevan Astha, has now launched a money back policy — the Jeevan Varsha..

A look at the salient features of the product.

LIC’s Jeevan Varsha is a close-ended money back plan with guaranteed additions. The plan provides for periodic payments of a proportion of sum assured at specified durations — on survival during the term of the policy and on maturity.

The plan provides for payment of sum assured on death, while guaranteed additions are payable on death and maturity.

Loyalty additions may also be payable during the last year of the policy on both maturity and death.

Eligibility condition: The minimum age at entry is on completion of 15 years and maximum is 66 years (nearest birthday).

Policy term is 9 and 12 years and the premium-paying term is nine years. Maximum maturity age is 75 (nearest birthday).

The minimum sum assured is Rs 75,000 for monthly ECS mode and Rs 50,000 for other modes. The sum assured can be increased in multiplies of Rs 5,000 and there is no cap on the maximum sum assured.

Premium payment modes are yearly, half-yearly, quarterly and monthly (ECS mode).

Survival benefits at the end of the third year are 10 per cent of the sum assured, 20 per cent at the end of sixth year, 30 per cent at the end of the ninth year and 40 per cent on maturity.

The Jeevan Varsha money back plan offers rebate of premium for the mode and sum assured. If the policy holder opts for yearly mode, the rebate is two per cent of the tabular premium.

The same is one per cent for half-yearly mode. For higher sums assured, it varies from Rs 2 for less than Rs 2 lakh and Rs 3.50 for Rs 5 lakh and above.

Guaranteed additions: The policy guarantees Rs 70 per year for a 12-year term and Rs 65 for nine years for Rs 1,000 of sum assured.

Who should go for it


In general, money back policies are more expensive than traditional endowment policies and Jeevan Varsha is no exception. However, it is an investment option that generates reasonable returns for investors in the higher tax brackets, who can reinvest the proceeds in a disciplined way.

Being a money back policy, there will be regular cash flows once every three years. For instance, at 30, if one takes the plan for a sum assured of Rs 5 lakh, the annual premium outgo will be Rs 78,497.

If he falls in the 33.9 per cent tax bracket, the net effective premium outgo will be Rs 51,887, after considering tax savings. At the end of the third year, he will receive Rs 50,000 (10 per cent of sum assured) as the first tranche of “money back”.

Let us assume he redeploys this money at the rate of 7 per cent and repeats this in the sixth and the ninth year. On maturity — the end of the 12th year — he will receive a sum assured of Rs 2 lakh (40 per cent of the sum assured) and guaranteed additions of Rs 70 per year for the 12-year period. For the sum assured of Rs 5 lakh , this will work out to Rs 4.2 lakh.

Taking into account a loyalty addition of Rs 50,000 at the end of the tenure, one will receive Rs 10.95 lakh for an investment of Rs 4,66,983, and this translates into a compounded annual return of 7.3 per cent.

However, the returns would be much lower for investors in the lower tax brackets. If one is in the 20 per cent tax bracket, his yield will drop to 5.7 per cent. Further, returns from this product will also be low for those who are not in tax bracket ; the return will be 3.7 per cent even if they reinvest the returns received from time to time. This plan, therefore, can be considered by investors who have not fully exhausted their options under Section 80 C.