On November 29, 2023, LIC introduced a new plan, LIC’s Jeevan Utsav (Plan No. 871) – a guaranteed whole life income plan. This plan is currently being heavily advertised. It boasts all the terms that you may find attractive: regular income, guaranteed, lifelong benefits, and, most importantly, the intriguing ‘10% per year!’.
So, is this finally the policy that could meet your income needs with decent returns, or is it just old wine in a new bottle? Read on to find out.
About the policy
LIC’s Jeevan Utsav is a non-participating, non-linked, whole life insurance plan that provides guaranteed income. This means:
- its returns are not affected by either market performance or LIC’s performance. That is, you do not ‘participate’ in the insurer’s profits, but receive a predetermined payout
- it does not mature and ends either upon surrendering the policy or upon the death of the policyholder.
Basic details
The table below captures the basics of this policy:
The age of entry for LIC’s Jeevan Utsav ranges from 90 days to 65 years. However, the actual minimum and maximum age may vary based on the chosen premium paying term. For example, the maximum age at which the last premium can be paid is set at 75, which would make the entry age a lot younger based on the policy period you choose - if you want a 15-year premium payment term, for example, the oldest age is 60 years. For more details, refer to the brochure, page 2.
The minimum sum assured in this policy is Rs. 5 lakh, and there is no maximum limit. However, the approval of the sum assured will be subject to the underwriting policy.
Death benefits
In the event of the insured's death, the highest of the following three will be payable:
- Basic sum assured plus guaranteed additions
- 7 times the annualised premium plus guaranteed additions
- 105% of the total premium paid
Do note that the premiums mentioned above exclude taxes, loadings, and the cost of any riders attached to the policy, if applicable.
To give an idea of how much the death benefit may be, let’s take an illustration provided by LIC in the brochure. For a 35-year-old buying a policy with a sum assured of Rs. 10 lakh and a premium paying term of 10 years, the annual premium will be Rs. 1.11 lakh + GST. The applicable death benefits start at Rs. 10.4 lakh in year 1 and reach Rs. 14 lakh by year 10, remaining at Rs. 14 lakh thereafter.
Income benefits
After completing the premium payments, income benefits commence after a specified number of years. This duration between the completion of premium payment and the start of income benefits ranges from 3 to 6 years. Shorter premium payment plans have the biggest such duration before the commencement of income benefits. (For specific details on the exact year of the start of income benefits for each premium payment period, please refer to the brochure, page 4.)
LIC Jeevan Utsav policy provides two options for income benefits. You can choose one of the options and there are no provisions for switching across options once policy is purchased.
- Option 1 - Regular Income Benefit: A fixed amount of 10% of the sum assured annually and paid every year for life. This is not the return on investment - remember that what you are paying is the premium for a certain period of time, after which there is a no-premium-no-income period, and only then does your income start. Returns need to take into consideration all of these, which we will discuss separately. The regular income benefit is simply the fixed sum that you will receive each year and this amount does not change at any point.
- Option 2 - Flexi Income Benefit: Similar to Option 1, you can claim for 10% of the sum assured every year. However, under the flexi-income option, you can choose not to withdraw it, and LIC will provide a 5.5% annual compounding return for the income that was not claimed (Hint: When a policy mentions something like this, assume the return it generates might be close to this number). At any point, policyholders can request to withdraw up to 75% of the accumulated balance, which consists of income deferred and the compounded returns it earned. Only one withdrawal per year is allowed.
Maturity benefits
As this is a whole life plan, it does not mature and ends either upon surrendering the policy or upon the death of the policyholder. Maturity benefits are not applicable for this plan.
Surrender Value
The policy allows for surrender after completing two full years of premium payment. The surrender value payable depends on the total premium paid and guaranteed additions accumulated up to the surrender date, as detailed in the brochure on page 11.
In a sample illustration - for a policy with a premium paying term of 10 years for a 35-year-old, the surrender value starts from 30% of the total premium paid at year 2, reaching 50% at year 5, and 104% at year 11. It's crucial to note that this is merely the arithmetic sum of the premium paid, without accounting for returns forgone. A more in-depth analysis of the surrender value will be explored in detail in the 'What Return LIC’s Jeevan Utsav Generates' section.
Other benefits
The policy offers add-ons (riders) such as accidental death and disability insurance, term assurance, critical insurance, and premium waiver benefits. If the proposer is not the policyholder and opts for premium waiver benefits, in the event of the proposer's death before the end of the premium payment period, the policy will continue without further payments. However, as we have always maintained, we prefer using standalone policies for term insurance, critical insurance, etc. The policy also offers a loan facility, with the maximum loan permissible 50% to 75% of surrender value.
What return LIC’s Jeevan Utsav generates
The challenge in calculating returns for traditional insurance policies lies in their attempt to complicate it for the average investor, making it challenging to understand the actual returns, both in numbers and narrative. LIC’s Jeevan Utsav is no exception.
The 'Guaranteed 10% return on sum assured for life' is enough to pique the interest of fixed-income investors in the policy. Additionally, it mentions 'guaranteed additions after each premium-paying year,' creating the impression that, on top of what you pay, there is an extra payment generating returns; however this is actually the addition to applicable death benefits per premium paying year and not directly contributing to returns of the policy.
Therefore, to calculate the actual returns, you need to disregard these elements and focus solely on the payments you make, the credits you receive, and the timelines involved.
To credit LIC where it's due, they provide an illustration table in the brochure. Once you understand the actual cash flows to and from the policy, we can simply enter this data into a spreadsheet and calculate XIRR.
We've performed this analysis for both of the income options in the policy.
Option 1- Regular income benefit
We ran the returns calculation with the following, as per the illustration provided in the brochure.
- Age at policy purchase: 35 years
- Annual premium before tax: Rs 1,11,050. Including GST, the total premium paid over 10 years will be Rs. 11.38 lakh.
- Sum assured: Rs 10 lakh
- Premium payment term: 10 years
- Regular income commencement: Year 13
Here, the regular income benefit will amount to Rs 100,000 per year, starting from year 13. Now, let’s assume that the policyholder’s demise is at age 100 - which makes the period of receiving income a solid 65 years. The death benefit (in addition to the 65 years’ regular income) will be Rs. 14 lakh.
The XIRR of this payment and income inflow works out to 5.91%. For more details, please refer to the attached spreadsheet. Is this good or bad? We’ll get to it!
Option 2 - Flexi income benefit
We ran the returns calculation assuming the following, going by the illustration provided in the brochure.
- Age at policy purchase: 35 years
- Annual premium before tax: Rs 86,850. Including GST, the total premium paid over 12 years will be Rs. 10.68 lakh.
- Sum assured: Rs 10 lakh
- Premium payment term: 12 years
- Regular income commencement: Year 15
Starting from year 15, the policyholder will be eligible for Rs. 1 lakh income per year. Here we will look at the case where the policyholder deferres all income and does a single withdrawal of 75% of accumulated corpus and decides to leave the rest for the nominee as inheritance. Here also we expect the life expectancy to be 100 years. See the table below:
The XIRR for this option works out to be slightly less than returns in Option 1, but is understandable given that Option 1 has you receiving income much earlier on, and the deferred income in the flexi-income plan is being compounded at 5.5%
Impact of rebates
The brochure mentions two rebates (i.e., discount on premium paid):
- Rebate for high sum assured: Unfortunately, neither the brochure nor the policy document provides details on rebates for a high sum assured.
- Rebate for online sale: the brochure states, 'For proposal to be completed under online sale without any assistance of Agents / intermediary shall be eligible for a rebate of 10% on tabular premium'.
However, for point 2 above,
The benefits illustration provided in the brochure, which we have used for calculating returns, does not consider any rebate. Should we factor this into the calculation, assuming a 10% discount for online purchases, the returns of the options stand as follows:
- Option 1: 6.39%
- Option 2: 5.86%
This calculation is also available in the spreadsheet attached.
Returns on surrendering
As LIC’s Jeevan Utsav is a whole life policy with no maturity, the only option for investors to close the policy is through surrender. However, in line with traditional endowment policies, the terms for surrendering this policy, especially in the initial years, are not favourable.
An intriguing point to note is that despite the emphasis on guarantees, the surrender value of this policy is not entirely guaranteed. The brochure specifies that the surrender value will be the higher of:
- the 'guaranteed minimum surrender value' or
- 'non-guaranteed special surrender value,' with the special surrender value being reviewable and determined by LIC from time to time.
In the sample illustration given by LIC, from year 5 onwards, the applicable surrender value is the special surrender value. We considered this special surrender value and recalculated returns for Option 1 and Option 2 assuming that the policy is surrendered after a number of years.
The XIRR stands as follows:
Refer to the provided spreadsheet for a detailed view of how returns vary at various durations of surrendering.
Should you buy this policy?
So, the question is how LIC Jeevan Utsav should be viewed. There is the life insurance aspect and the regular income aspect.
Consider the life cover first. For the premium paid, the life cover is low. A pure term insurance’s life could be 30 to 80 times the life cover offered by LIC’s Jeevan Utsav for the same premium paid. Therefore, opting for LIC Jeevan Utsav for the purpose of life insurance is wholly unsuitable. There are far better options available.
That leaves the returns that this policy can deliver, and therefore assessment needs to be done on the investment aspect alone. The key attractions of guaranteed income plans lie in their assurance of payment and tax-free status. The key in LIC Jeevan Utsav is its seemingly decent return, going by the illustration calculations above.
Good, consistent debt funds generate long term returns of about 7% to 8% (current long-term government bonds yields are also in a similar range). Comparatively, an XIRR of 6% or more for a reasonable duration could have been competitive for those in higher tax brackets. If you include rebates, LIC Jeevan Utsav’s XIRR is at that level.
However, there are a few points to note here.
#1 Better options
One, lock-ins for LIC Jeevan Utsav are long. Income generation begins only a few years after premium is paid. Given this length of years, during the accumulation (premium-paying) phase, the same amount can be invested in far more liquid, more transparent, better-returning products.
For example, average 5-year returns of aggressive hybrid funds have been about 11%. Let’s assume a more sedate 9% long-term return and the tax impact. Now, consider the parameters under Option 2 above (12 year premium payment with income from year 15), where the annual income is Rs 1 lakh. Should the premium be invested at a 9% return, the corpus generated at end of year 15 would be about Rs 21.9 lakh (post tax).
Other long lock-in products such as NPS would also serve to accumulate greater wealth and invest at a later date into income-generating products, translating into higher investment returns.
Also note that the XIRR calculated above for LIC Jeevan Utsav is a single, good, scenario where income is generated for 65 years. For a given premium and entry age. XIRR can drastically differ when the generation is over a different period or premiums change. It’s hard to peg the real return you may earn.
#2 Tax loopholes closed
If the tax benefits have you interested, note that the government has been closing tax loopholes that used to benefit these types of policies. Currently, a guaranteed income plan can be tax-free only if both of the following criteria are met:
- Annual premium should be less than Rs. 5 lakh.
- Annual premium should be less than 10% of the sum assured.
LIC’s Jeevan Utsav’s premium paying term varies from 5 years to 16 years. A quick glance at the sample premiums indicates that for the annual premium to be less than 10% of the sum assured, the premium paying term should be 12 years or longer. Therefore, in this case, the income will start at year 15 or later (please refer to the table given in the brochure, page 4).
The better alternatives available to getting life cover and better returns on investment along with the negative to extremely low realised returns upon surrendering, lead us to the conclusion that this policy may not be worth considering despite its guarantees. The typical inflexibility associated with such policies is a further detractor. Our recommendation, therefore, is to give this policy a pass.
You can use the excel sheet provided to experiment with premiums & terms to gauge the impact on potential XIRR. Do note that these are illustrative only and actual returns will depend on the premiums paid and other policy terms.
LIC’s Jeevan Utsav - Policy Document
9 thoughts on “LIC’s Jeevan Utsav – does it really provide 10% returns?”
Bipin, Thank you for this article ! Eye opener !
Having said that, LIC has its unique strengths. Trust, very wide Offline network, many access points, Online presence as well. Wide range of products. Good service experience often better than Private insurers. Staggered Premium payment options from Salary deduction to Payment across Branches, Time periods, Revival, etc
Too often, people miss out on the ‘discipline’ of adhering to SIPs along with a Term plan. For those such, some of their products do help. If it is not too much of an ‘Ask’ , then do suggest an LIC product which balances across Life Risk coverage with decent return, among their own products
Meanwhile, Thank you once again !
More than a decade ago, I was trapped by a ‘relative’ into ‘investing’ in one of the traditional policies. I made a grand sub 3% return after paying premiums for 10 years. I run away from him and all such products these days. Wish I knew how to calculate XIRR back then.
Are all LIC policies terrible or have you done an analysis of some scheme which is worth considering? Can you share the link incase there is one please? Thank you,
Hello, we haven’t reviewed all policies of LIC. Generally, we select policies for review based on their popularity / investor interest. We believe the issue lies in the type of policies rather than the insurer. A traditional insurance plus investment plan (endowment, money back, guaranteed income) collects premiums and channels them into mortality costs to offer death benefits, fees, and the investment component. The investment mostly occurs in top-rated debt instruments. To guarantee payouts, the returns offered by this policy will need to be [the expected returns from the debt instruments over the policy term] minus [fees and mortality costs].
Looking at it this way, for an investor sticking with this policy for the long term, they’re getting approximately 1% to 2% less than top-rated debt returns.
Three factors work against this arrangement:
1) For an investor with more than a decade of timeframe, top-rated debt may not be the best instrument from a risk-reward perspective.
2) Fees significantly reduce the return component of a debt-based instrument (e.g., 2% fees on an 8% return instrument mean 25% of the return generated is gone as fees).
3) Since the policy doesn’t provide any meaningful death benefit, it will be compared against investment products, where it will pale in comparison.
Despite these disadvantages, the tax treatment used to benefit some of these policies; however, as mentioned in the article, this is becoming more and more challenging.
Other downsides, common among this type of policy rather than the insurer, include:
1) Punitive exit clauses.
2) Lack of transparency: They don’t have to declare fees/costs, a typical policy mentions benefits as linear payments and credits. This does not account for the time value of money, and the return looks better than what it actually generates (e.g. XIRR).
Excellent analysis….. I never came across any policy from LIC (including its term plans – other players have better cost) which are useful for normal people… its just the distribution might that gives such huge market share to LIC…. May be if you have come across any policy which is good, please share!!
Thank you!
I feel the problem lies in the type of LIC policies we come across. Explained this in detail in another reply.
Thanks for the nice analysis. Couple of questions
1. What happens in the case of death of policy holder during the payout period, does the annuity component switch to the nominee? In that sense is this similar to HDFC Sanchay in payout terms?
2. It appears from some reading that the SA for some premium/term combinations are lesser than the 10X premium cutoff for tax exemption? is that fair and which combinations to avoid would be good advice to share as well please?
Thank you! Regarding the questions:
1) No, after paying death benefits, the policy will be closed.
2) Yes, for some combinations, the sum assured is less than 10X annual premium. This will depend on a number of factors. Every insurance + investment product’s premium consists of two elements, mortality premium and investment component (and fees of course). The lower the component out of total premium goes towards mortality premium, the lower the death benefits will be. Also the lower the number of premium paying years, the lower the death benefits as a multiple of annual premium. There are no regulations mandating a policy to provide at least 10X cover of annual premium paid. It just makes the policy not eligible for certain tax exemptions. You can check the brochure, page 7 for indicative premiums; do note that actual premium will depend on age of entry, any loadings applicable etc.
Thank you! The whole return benefit calculation goes for a toss if the tax benefits are not available. Any interested investors should watch out if the SA <10X annual premium