LIC Dhan Varsha (Plan 866): Assessment

LIC Dhan Varsha: Single Premium. Assured LOW Returns. Lengthy Maturity. Keep away.

Any new plan from LIC is simply outdated wine in a brand new bottle. Even earlier than I write and end return calculations, I do know that returns can be poor. And I’ll ask you to remain away. LIC Dhan Varsha isn’t any totally different.

No offence to LIC. LIC is without doubt one of the most reliable manufacturers in India. The whole lot else being the identical, If I had to purchase an insurance coverage plan, I would like to purchase from LIC fairly than personal insurers like HDFC Life or ICICI Prudential. It’s the nature of the product. Such plans, even from personal insurers, are poor funding merchandise.

What’s LIC Dhan Varsha?

The primary web page on the brochure says this about LIC Dhan Varsha.

Make investments as soon as, take pleasure in assured maturity with life cowl.

This itself tells you numerous concerning the plan.

1. Make investments as soon as means Single Premium
2. Assured maturity: signifies the plan is a non-participating plan since solely such plans present assured returns.

In case you are planning to purchase an funding and insurance coverage combo product and will not be certain what you might be shopping for, do learn this submit. Or should you choose to learn Twitter threads, you may try this Twitter thread.

LIC Dhan Varsha (Plan 866): Salient Options

1. Non-linked, Non-participating Life Insurance coverage Plan
2. Non-linked means it isn’t a ULIP
3. Non-participating means the returns are assured. upfront how a lot you’ll earn from this plan.
4. Coverage Time period: 10 years or 15 years
5. Assured additions
6. Minimal Age at entry: 3 years for 15 years coverage time period, 8 years for 10 12 months coverage time period.
7. Settlement choice: You possibly can decide to obtain maturity profit in installments. However that is often a poor alternative.

For extra on LIC Dhan Varsha, counsel you go to the product web page on LIC web site.

Together with single premium LIC Dhan Varsha, LIC had additionally launched an everyday premium non-participating plan, LIC Dhan Sanchay (Plan 865). You possibly can learn the LIC Dhan Varsha overview right here.

Two Sum Assured (on Demise) choices

You possibly can select the Sum Assured as a a number of of the Single Premium.

2 choices.

1. Choice 1: 1.25 instances Single Premium: Higher pre-tax returns however the maturity proceeds can be taxable. You will need to pay tax on (Maturity quantity – Single Premium paid) as per your tax slab. Most age at entry: 60 years
2. Choice 2: 10 instances Single Premium: Inferior returns however the maturity proceeds are tax-exempt. Most age at entry: 40 years for coverage time period of 10 years. 35 years for coverage time period of 15 years.

Maturity proceeds of life insurance policy are exempt from tax provided that the Sum Assured is no less than 10 instances single/annual premium. This isn’t the case in Choice 1. Sum Assured is just one.25 instances single premium.

LIC Dhan Varsha (Plan 866): Demise Profit

Demise Profit = Sum Assured on Demise + Accrued Assured Additions

Sum Assured on Demise is determined by the variant chosen.

Choice 1: 1.25 instances Single Premium

Choice 2: 10 instances Single Premium

The Single premium is determined by the

1. Entry age
2. Coverage time period
3. Choice chosen
4. Primary Sum Assured

Be aware that Primary Sum Assured is totally different from Sum Assured on Demise. Primary Sum Assured comes into image whereas calculating Assured Additions. We will have a look at the calculation of assured additions later within the submit.

LIC Dhan Varsha (Plan 866): Maturity quantity calculation

Maturity quantity = Primary Sum Assured + Accrued Assured Additions

You selected the Primary Sum Assured on the time of coverage buy. And this determines your single premium. As talked about above, Primary Sum Assured is totally different from Sum Assured on Demise. Primary SA just isn’t linked to Choice 1 and Choice 2. Primary SA is used to calculate the assured additions and therefore the maturity quantity.

Assured additions get added to your coverage on the finish of every coverage 12 months and are paid out on the time of maturity/demise. Relies on the Primary Sum Assured and the coverage time period.

LIC Dhan Varsha (Plan 866): Profit Illustration 1

I reproduce an instance from the product brochure.

1. Entry age = 30 years
2. Coverage Time period: 15 years
3. Choice 1: 1.25 instances Single Premium
4. Primary Sum Assured: Rs 10 lacs
5. Single premium (earlier than GST) = Rs 8,86,750 (as shared within the brochure based mostly on tabular premium)
6. Single Premium (after 4.5% GST) = 8.86 lacs X (1+4.5%) = Rs 9.26 lacs
7. Sum Assured on Demise = 1.25 X Single Premium = Rs 11.08 lacs

Assured Addition for Primary SA of Rs 10 lacs and Coverage tenure of 15 years =  Rs 75/ Rs 1000 of Sum Assured for Choice 1

GA per 12 months = Rs 75 X Rs (10 lacs/1,000) = Rs 75,000

GA for 15 years = Rs 75,000 X 15 = Rs 11.25 lacs

Maturity quantity = Primary Sum Assured + Accrued Assured Additions

= Rs 10 lacs + Rs 11.25 lacs = Rs 21.25 lacs

So, you invested Rs 9.26 lacs and received again Rs 21.25 lacs after 15 years, that’s an IRR of 5.7% p.a.

And even this quantity is taxable.

LIC Dhan Varsha (Plan 866): Profit Illustration 2

I reproduce an instance from the product brochure.

1. Entry age = 30 years
2. Coverage Time period: 15 years
3. Choice 2: 10 instances Single Premium
4. Primary Sum Assured: Rs 10 lacs
5. Single premium (earlier than GST) = Rs 7,98,700 (as shared within the brochure based mostly on tabular premium)
6. Single Premium (after 4.5% GST) = 7.98 lacs X (1+4.5%) = Rs 8.34 lacs
7. Sum Assured on Demise = 10 X Single Premium = 79.87 lacs

Assured Addition for Primary SA of Rs 10 lacs and Coverage tenure of 15 years =  Rs 40/ Rs 1000 of Sum Assured for Choice 1

Complete GA = Rs 40 X (10 lacs/1,000) X 15 years = Rs 6 lacs

Maturity Quantity = Primary SA + Accrued Assured Additions = 10 lacs + 6 lacs = 16 lacs

You invested Rs 8.34 lacs. Get 16 lacs after maturity.

IRR of 4.43%

However this quantity is tax-free.

The pre-tax returns are decrease than Choice 1 as a result of Choice 2 affords you a better life cowl. Thus, increased price incurred for all times cowl.

Factors to Be aware

1. The premium goes up with age. Anticipated.
2. The whole lot else being the identical, a youthful investor will earn higher returns than an outdated investor. A 30-year-old investor (on the time of buy) will earn higher returns than a 40-year-old. Why?
3. The maturity quantity would be the identical for each the buyers. Why? As a result of the Primary Sum Assured is identical. Coverage time period is identical. And the assured additions rely upon solely these two variables. Thus, Assured Additions would be the identical too.
4. Since Maturity quantity = Primary Sum Assured + Accrued Assured additions, each the buyers will get the identical maturity quantity.
5. The one distinction can be in Single premium. For a similar primary Sum Assured, a 30-year-old investor can pay a decrease premium than a 40-year-old investor.
6. So, the 30-year-old pays a decrease premium and will get the identical maturity quantity. Thus, higher web returns than a 40-year-old.

That is widespread throughout all conventional plans and ULIPs. The returns rely in your entry age.

LIC Dhan Varsha: Must you make investments?

The most effective factor about LIC Dhan Varsha is that it is extremely easy.

You make investments as soon as and get again your cash with returns after 10/15 years. Very like a financial institution FD.

However the returns are too low for an extended length funding product. As well as, the plan has regular problems with a standard plan. Lack of flexibility. Heavy exit penalties.

I might keep away.

What would you do?

Supply/Extra Hyperlinks

LIC Dhan Varsha: Product Brochure

LIC Dhan Varsha: Coverage wordings