5 major changes in life insurance policies from jan 1, 2014 – how it affects you _

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1/17/14 5 major changes in life insurance policies from Jan 1, 2014 How it affects you ?

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JagoInvestor Helping Investors become better5 m ajor changes in life insurance policies from Jan 1, 2014 How it affectsyou ?

Some major changes are going to happen in life insurance industry from Jan 1, 2014, especially intraditional policies like Endowment Plans, money-back plans and even ULIPs. You will surely have aLIC policy or any other private sector traditional plans or might buy them in coming times. Here are 5major changes which you should be aware about and they will come into effec t from Jan 1, 2014.

1. S ervice Tax introduced in LIC Policy Premium

Till now LIC was not charging the service tax of 3% from the customers and paying it to govt fromthe pool of mo ney collect e d itself, but now the service tax will have to be charged separately frompolicy holders. Which means that if your LIC premium was Rs 50,000 per annum, now it will be 3.09%higher in first year, which is Rs 51,500 and after 1st year, it will be 1.545% as per moneylife article .

While customers see it as additional burden, note that its not the case exactly, Earlier LIC waspaying the service tax from the pool of money collected from investors only, which reduced thebonus amount given back to them. But now bec ause it will not be taken o ut from the funds, thatmeans the bonus declared each year will go up by that much margin and will come back to investorsonly. Note that Pvt companies were charging the service tax already, so nothing changes on theirside. Only LIC was not charging it separately, which they will have to do from Jan 1, 2014 deadline.

2. Increase in Surrender Value

One of the major cha nges which has happened, is the change in surrender value for policy holders.The rules of surrender value depends on the premium paying term of the policy. If the premiumpaying term for policy is less than 10 yrs. Then the policy will acquire the surrender value afterpaying premium for 2 yrs (earliar it was 3 yrs), however if the premium paying tenure is more than 10yrs , then the surrender value will be acquired only after paying 3 yrs premium.

In both the cases, the minimum surrender value would be 30% of the premiums paid withoutexcluding the first year premium. Note that earlier, if you used to surrender after paying 3 premiums,

you got 30% of premiums paid MINUS first year premium, but now as per new rules, the first yearpremium will not be deduc ted. Learn everything about LIC policies work ing before Oc t 1

Another good change is that, from 4th-7th year, the minimum surrender value would be 50% of thepremiums paid, and has to reach 90% of premiums paid in last 2 yrs of policy paying tenure.

3. Possible Decrease in Premium on LIC Policies

There is a great possibility that the premiums on LIC policies will come down by some margin,because the mortality rates will now be revised by LIC in calculating the premiums.

Mortality rates are the rates at which the insurance company deducts the fees for insuring youbased on your age. LIC had been using old mortality rates till now, but now they will have to use newmortality rates . Just to give you an idea on reduction of premium, when I check the mortality rate

for a 40 yrs old person in old table, its 0.001803 . But in new rates its 0.002053 . Which is approx10% better. Lets not go into detailed calculation at the moment, but your risk p remium part shouldgo d own by 10% (not the full premium, because only some part of whole premiu m in traditionalpolicies are risk premium and rest is investment part) .

4. Higher Death Benefit

If the policy holder is above 45 yrs of age, then the Sum Assured has to be more than 10 times theannual premium, and for those who are less than 45 yrs old, it can be minimum 7 times the premiums.Note that for claiming the tax exemptions, your sum assured has to be 10 times the base yearlypremium. So when you buy the policy in-case, you need to keep it in mind. BasuNivesh has done agreat point by point notes on each aspect of regulation, in-case you want to go into details.

5. Agents incentives have now been linked to the premium paying term
http://basunivesh.com/2013/08/27/irda-life-insurance-regulations-2013-do-you-know-these-changes/http://www.actuariesindia.org/(S(gkqjtq555kwh1v553wns4355))/publication/IALM-_Mortality_Tables_(2006-08)_ult%20.pdfhttp://www.jagoinvestor.com/forum/insurance-mortality-charges-calculationhttp://www.jagoinvestor.com/2011/08/lic-policies.htmlhttp://www.jagoinvestor.com/forum/surrender-value-for-my-jeevan-saral-policieshttp://www.moneylife.in/article/lic-agents-last-hullabol-for-selling-traditional-products-before-service-tax-regime/34548.htmlhttp://www.jagoinvestor.com/http://www.jagoinvestor.com/http://basunivesh.com/2013/08/27/irda-life-insurance-regulations-2013-do-you-know-these-changes/http://www.actuariesindia.org/(S(gkqjtq555kwh1v553wns4355))/publication/IALM-_Mortality_Tables_(2006-08)_ult%20.pdfhttp://www.actuariesindia.org/(S(r4ggsxe3aq5eke553urbjee4))/subMenu.aspx?id=90&val=Indian_Assured_Lives_Mortalityhttp://www.jagoinvestor.com/forum/insurance-mortality-charges-calculationhttp://www.jagoinvestor.com/2011/08/lic-policies.htmlhttp://www.jagoinvestor.com/forum/surrender-value-for-my-jeevan-saral-policieshttp://www.moneylife.in/article/lic-agents-last-hullabol-for-selling-traditional-products-before-service-tax-regime/34548.htmlhttp://www.jagoinvestor.com/


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Now agents commissions is linked to the premium paying tenure. Earlier a lot of agents used to sellthe policies which had higher maturity tenure, but limited premium paying tenure (like 30 yrs policywith 10 yrs premium payment) . Here is the new commission structure taken from Moneylife article

In case of regular premium insurance policies, a policy with a premium paying term (PPT) of fiveyears will not pay more than 15% in the first year. Products with PPT of 12 years or more willhave first year commissions up to 35% in case the company has completed 10 years of existenceand 40% for the company in business for less than 10 years.

The funny aspect is that a lot of LIC agents tried to mislead many new investors by projecting date

Jan 1, as the deadline when a lot of LIC products will stop giving good features using the officialnotification. LiveMint has even captured it in this image.
http://www.moneylife.in/article/lic-agents-last-hullabol-for-selling-traditional-products-before-service-tax-regime/34548.html


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What should you do ?The insurers have to refile all their products to IRDA and already lots of products have beenapproved and many are still waiting for approvals. So if you have a insurance policy , then you will getthe communication from your insurer about any changes if any. Right now, for sure the traditionalplans have got bet ter, c ompared to their past avatars.

If you are adamant on buying endowment plan, better wait for some time and let things get moreclear. Let me know about your thoughts on this change ?

By Manish Chauhan on September 30, 2013 Posted in Life Insurance

Tags: Product Reviews

122 Comments | Post Comment

dinesh jain says:

Hi Manish,

In your first point you have mentioned service tax as 3% but service tax in actual is 12.3%, am imissing something here ?

Posted on September 30th, 2013

kranti Goyal says:

Hi Manish,

Is Service charge applicable to existing policy also?

Thanks and RegardsKranti Goyal


Navneet Kumar says:

Hi Manish,

A query here. What if I had a policy from before? Do the new rules apply to it or only on policiestaken post 01-10-2013? Will the old policies be continued with the old rules and regulations only?

Thanks,
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Navneet


prasanna says:

Irrespective of IRDA norms revision online term plans will be the best for ever


Sricharan says:

Thanks for the article.

I have an LIC endowment plan and i have paid premium for 5 yrs and I am planning to surrender it innext month. So would the surrender value be calculated based on the new rules or old rules??

Will the new rules apply only to the new plans after 1st oct??


Veeresh says:

Manish,Possible Decrease in Premium on LIC Policies.

This applies to only new policies or even to the already existing policiesPosted on September 30th, 2013

amol says:

existing and new lic policies are beneficial to customers invest more in lic policies to get tensionfree claims and decent returns.. remember private companies term insurance plans claims not passedeasily.. so invest in lic`s endownment plans for long term wealth c reation small term planning willnot give you the returns .. any natural calamity lic given hassle free claims..


Rahaman says:

Hi Manish,As always thanks a lot for this article, such a crisp summarized info!!


Nandji Rai says:

Dear Manish,You could have published it earlier. The damage has already been done. Thanks & Regards. Nandji Rai


Ramesh Sabbani says:

Will the surrender value of old policies as per new rules or not ?


Sandeep says:

It will only applicable to the new policy that you will take effective from 1st Oct.


Beginner says:

Thanks Manish.


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Does these changes apply to existing policies as well or only to the policies issued from October 1st?


Dharmendra Vadera says:

Dear Mr. Manish Chauhan,You have posted a marketing pamphlet at the bottom of the article with the Caption MISLEADINGADS PUT OUT BY AGENTS Hear I register my protest. Can you Justify how it is misleading ???

It was the true Information to the prospects, that In view of the above notification, LICs popularplans may not be available for sale in its PRESENT FORM after 30/09/2013.So, I would like to say, You have misled the public by publishing such pamphlet with MISLEADINGCAPTION.I would like to know your comments regarding this.Thanks,DHARMENDRA VADERA.


vijay says:

Thanks Manish for the information. Incidentally, at my wifes office people were scampering to gettheir LIC policies done coz a deadline was approaching! She called me frantically for somesuggestions, luckily for me, and thanks to you, it was stale news by then and we could analyze itwith a cool head.

@Dharmendra Speaking from a investor perspec tive, your protest is highly misplaced. T headvertisement is not inaccurate, but it does encourage a faulty assumption and so it becomesmisleading.

Posted on October 1st, 2013

srinivas M, LIC OF INDIA says:

Dear Manish,

Good information regarding this new norms with IRDA. But please dont tell miss leading from agents,please mention thare some agents. We are all doing this proffession with truth and trust with theintension of social service. So i feel proud i am an LIC Advisor. But till today i never sale any productwithout LIC calculations. And one more thing which you are mentioning Mutual funds and Equityrelated investments, how mwny brokers are giving right information and also how many stocks aregiving guaranteed returns? But here LIC is guaranteed for all their investments LIKE ReversionaryBONUS, FAB. We declared the bonus rate for the Jeevan anand policy 1 Rs. After the new guidence ithink who are raising their voice on LIC and LIC Agents may be quit and they will come to sale theLIC plans. Because LIC always trust Brand No 1, We have some agents fully knowledgable,proffessional, So dont hurt them.

regardsSrinivas MBangalore.


KRISHNAMANI SHASTRY says:

liked very much your article. about LIC


bharat shah says:

indeed useful information in apt time , and thoughts in favor of investors , though vested interestand unacknowledged keep noises as always!
http://www.insurebesecure.webs.com/


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Ramesh Sabbani says:

Are these rules applicable only for new policies or old ones too ? Could anybody replay please ?Manish ??


Varun says:

Great article ! Very informative..Posted on October 3rd, 2013

Sumit Aggarwal says:

Hi Dinesh,

I am Sumit. Yes Service tax is 12.36 % but in the case of LIC it will be 3.09%. 3 % is Service tax and.09 is Education cess. but please again confirm in lIC office. i am not sure.

Posted on October 3rd, 2013

Sumit Aggarwal says:

NO Friend. It will be applicable only on new policy.


Chetan Ambi says:

Nice article !!

Posted on October 5th, 2013

Dadasaheb says:

Very informative


Brian DSouza says:

I guess you may be wrong. Whenever a new bill will be generated even on an existing policy you willhave to pay service tax.


Manish Chauhan says:

thanks



Thanks Varun



Though I am not yet clear, but common sense says that it should apply to new policies


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Thanks



Welcome , thanks



Thanks for your concern Srinivas

When we say agents, it means some agents only . Dont take words literally



Thanks for sharing your case Vijay



Sir , First it is an image from Livemint and not from us . We have just republished it .

Second, you have to understand the difference between wrong and misleading . The wordswritten are correct, but are misleading . Misleading means which misleads investors and does nottake them into right direction.

Invest in stoc ks and it might give you 100 times return . What is written is not WRONG, butmisleading, because it does give a wrong impression. The pamphlet which you are pointing to tries toproject the deadline as some kind of golden opportunity which if investors dont grab, it will hurtthem. The problem is in the intention of agents and not the words.

As their duty and morality, the agents must have told the customers about the internal changes inpolicy rules like this article does and not use the opportunity to scare more customers so that theyrush and buy more policies without understanding whats going on .

Anyways. thanks for your comment and time to ask .

Manish



I am not sure on that, but it should not apply to existing policies as per my experience


Manish Chauhan says:Should not apply to old ones as per my experience , but not 100% sure on this



Can you share your experience ?



Welcome !
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Thanks for your wisdom Amol .



At this moment , I know that its applicable to new policiesPosted on October 7th, 2013


Old rules



True ! , agree to that



I dont think it will apply to old policies



Yes, it will apply to existing policies also



For insurance policies , its 3.09%


dinesh jain says:

Ok, thank you


Sricharan says:

Thanks for clarifying manish..


Nandji Rai says:

All Insurance companies grabbed this opportunity with both hands & mobilized sales force to sellmaximum on the ground that Insurance will become costlier due to Service tax effect. I saw thecrowd at LIC office, it resembled more than closing month[March] rush.


Version says:

Hi ManishI have a life insurance question. One of my relatives bought a high-value term insurance.
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He underwent medical tests, etc. before the policy was issued to him. After couple of years of policyissue, he was diagnosed with a critical illness. He is still living undergoing treatment. This informationon critical illness has not been passed on to the insurance company. However, he is worried thatafter his demise his family might be denied claim as insurance company might think that he had notdisclosed his medical condition in the application. There is no foul play on part of my relative at alland he indeed did not know of the medical condition at the time of applying for the policy (though inretrospect he has been living with the condition for several years, i.e., even prior to issuance of thepolicy). Policy has been in force for five years or so.

Question is should he bring his medical condition to insurance companys knowledge and establish

that it was indeed diagnosed couple of years after the policy was issued. Thanks.Posted on October 10th, 2013

Aravind says:

I think the insurer should not complain. Since the critical illness was not present/diagnosed at thetime of the policy writing, it should not matter that it is present now. As long as no relevantinformation was hidden when the insurance contract was signed, it should be fine.

Just my thoughts Over to Manish for his expert comments


r k raman says:i have bima gold money back policy of LIC ,paid 37000/-per annum for twenty lackh cover

is it continue or drop and take term insurance?


Version says:

Generally speaking, one should use insurance products purely for covering the risks. Mixing insurancewith investment/savings is not such a good idea as the returns on the investment/savings bundledwith insurance do not match with what one could otherwise get in pure investment product due tohigh charges in the insurance products. In the case of life insurance, term insurance is the onlyproduct that is meant to cover only the risk and thats the product one must go for even if onefeels that one is not getting anything back if there is no claim during the term of the insurance.

Coming back to your questions -1. whether to surrent or continue money back policy depends on how long you have had the policyand how much money you stand to lose if you were to surrender. Reading though the policy youshould be able to find our surrender charges, and then you can take a call on whether you are willingto forego that amount. In any case, you should not surrender unless and until you have alreadybought a term policy. If for any reason your application for term insurance is rejected, you would beleft in a lurch.2. With the high inflation currently prevailing in Indian market, and no visible sign of situationimproving anytime soon, one must go for a term insurance that is 10-20 times of ones annual grossincome. Even if you decide not to surrender moneyback policy, you could re-assess your need for

any additional insurance, and go for term insurance for the additional coverage. Buying terminsurance online would be the cheapest way of doing so.

These were my two cents. Please wait for Manish opinion before you proceed.

Regards,

Version.


r k raman says:

thank you for reply ,bima gold continue from last five year


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what will be surrender value?


Sandip Sabnis says:

nice info ManishThanks a lotI was about do stop some of policies like Market Plus .Would you suggest to wait till Jan?Thanking you in anticipation


Karthik says:

Thanks for the information. Please keep us updated by posting great articles.


giribabu2020 says:

Hi Manish JiI am planning to buy Invest Gain -Platinum policy with FIB rider.This is like LIC JeevanMitra Triple cover.But here its quadraple cover and with Fib rider (Monthly 1% of base sumassured(12% pa) paid to nominee for minimum 10 yrs or end of policy term which ever is higher)

(Endowment Plan) from Bajaj Allianz Life Insurance co.Iam planning to take 1250000 base sumassured,so in the event of death 50,00,000 is covered and monthly 1% of base sum assured is paidto nominee for minimum 10yrs or end of policy term wh ever is higher.The agent is saying that if i payfor 15 yrs term(limited payment option) it will continue(coverage) for 40 yrs term ( I am 30 Yrs),so atmy 70 Yrs age i will get my sum assured plus compound bonus (bonus will be 2.5% on sum assured).Iam supposed to pay Rs 58035/- for 15 yrs and at maturity i will be getting almost 35 Lakhs @ 2.5%bonus on SA.so in next 15 yrs iam paying Rs 8,70,525.00 (58035*15yrs) and i will be getting 35Lakhs(sum assured 1250000+Compound Bonus).The rate of return will be around 5-6%.what i am thinking is that i am paying 8.71 lakhs and getting 35 lakhs as a maturity and risk iscovered till 70 age.Suppose if i take any online term plan for same 50 lakhs i am supposed to pay around 10000 pa.so onthe whole iam paying 10000*40yrs=Rs 400000.and i will be investing rest of money in PPF or FD, so iwill be getting more than 50 lakhs as a maturity,but regarding FD always there is a risk of falling

interest rates.but still i hope i can get 50 lakhs as a maturity.Instead of that if i took this policy i willbe getting 35 laks maturity and total risk cover.so iam confused whether to take this policy alone orelse Term policy plus FD.Already iam doing 15000 sip per month.i can get very good returns from sipbut still i want to scatter my investments,so can i treat thsi policy as debt fund with 35 lakhs returnsby paying 8.71 lakhs in 15 yrs or just online term policy and FD.If i convert this into sip instead of FD i know i will get more than Fd but already i am doing 15000sip.we cant keep all eggs in one basket.becoz market risk is biggest risk.Kindly suggest me about this policy or can i take term Plan + FD



Given the complexity of the plan , I would just move to TERM PLAN + FD



Sure !



You can wait for it if you feel that it will become a bet ter product after Jan , which I dont think so

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Your Agent will be able to give you numbers on this



I would have taken term plan if I were at your place , now its your pick



I dont think there is much issue . He will not be denied the claim , while this might be the concern, if they had put all the paper work earlier, they should not worry !



True !


manyam says:

Nice Article again Manish..

I have a question for your point# 3 There is a great possibility that the premiums on LIC policies willcome down by some margin, because the mortality rates will now be revised by LIC in calculating thepremiums..

So that means, the premiums will also adjust for term policies as well? And so other than LIC, allother insurance companies already using new mortality rates?


Version says:

Reproducing below what I found on a site:

Surrender Value : Aft er completion three years of premium payment, policy will be eligible forGuaranteed Surrender Value. The guaranteed surrender value under New Bima Gold policy will be 30%per cent of the total premiums paid excluding first year premiums and extra premiums paid.

You should be able to calculate surrender value based on this. You should also look at your policydocument closely to confirm the surrender value calculation.

Let me expand on my answer. Decision to surrender or continue should be made based on hardnumbers, and not gut feel. Here are the two calculations that would give an apple-to-apple tocomparison between the two possible outcomes -

(A) Continue with the policy in this case, you should assume that moneyback you receive from timeto time is being inversted in PPF and is earning non-taxable interest @8.7% (it keep fluctuating, soyou could use any number between 8 and 9 as you deem fit). You would also receive proceeds atthe end of the term of the policy, which will include bonus additions as well. Say the total moneywould have in the kitty at the end of the term is X (proceeds from the maturity of the policy +accumulation in PPF including interests).

(B) Surrender the policy in this case, first consider the surrender value being invested in PPF. Alsoget a quote from any online site for a term insurance plan that has same sum assured and will last aslong as your original policy was to last (say original policy was for 20 years and you have already hadthe policy for five years, then look for 15-year term plan). Now deduct annual premium amount from37,000. Thats the amount you would have in hand to invest. Again, invest that amount in PPF year-after-year. Assume same rate of interest on this PPF investment as what was assumed in scenario


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(A). At the end of the term, you would only have PPF accumulation (since term plan does not buildany cash value). Say that amount is Y.

Comparing X and Y would decide for you which way to go. Go with whichever is giving you higheramount.

I have used PPF as the mode of investment because it offers same tax advantage and thereforekeeps the tax element from calculations out. In other words, it keeps the calculations simple.


Version says:

Hi Giribabuthanks for sharing detailed calculations. If everyone were to do similar number crunchingbefore making investment decisions, it would serve the objectives of Jago Investors.


Version says:

Thanks!


Shivaraj says:

Hi

I am LIC Agent, I would like to know whether 10% Bonus Commission is applicable for the policieswith only 5 Year PPT. (Table No. 48, PPT-5 Years)


r k raman says:

thank u for your valuable suggestion. I have two daughter 1st is 2 year 2 month old 2nd 2 month old,how to manage financial budget for her education and marriage .I am a rly.serviceman get netpayment arrount 30000/-(thirty thousant) per month.i have no other liabilities.

thank youPosted on October 21st, 2013

Sandip Sabnis says:

Thanks Manish.I asked because of the point above Increase in the surrender value.

Posted on October 22nd, 2013

Marie says:

Great post- more people definitely need to know about this!! I personally am in support of these

changes, but I have heard from quite a few other people that they are not.Posted on October 22nd, 2013

Sudhakar says:

Hi Manish,

Nice article.I have a question. I have a Jeevan Anand policy for tenure of 21 years, for which I am paying 49200yearly.I have already completed 6 years. After reading these financial blogs I realize that its better to stoppaying and go for term plan.I have asked LIC customer care regarding how much I get if I surrender the policy now.
https://www.nber.com/


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They said I will receive approximately 1,62,000.So is it better to surrender now, or Will it increase surrender value if I wait till Jan 1st?


rajughote says:

Dear Manish Sir,Thank you very much for sharing such great information.. I want your advise/opinion on followingissues,

1) In 2006 , I have taken Jeevan anand, SA=3 L, term=16 years; Jeevan sathi,SA=2 L, term=16years ,total premium= 34 K/annum2) In 2009, Jeevan Saral,SA=7.5 L ,accidental=15L,Term=35 years,premium=34K/annum3) In 2012,LIC term plan,SA=50L,premium=16.5K/annum

Now after reading your articles, I feel I must come out of policies Sr No 1 and 2 and take one moreterm plan like sr no. 3 for 1Cr. But confused among HDFC,click to protect,SBI smart shield,kotak epreffred and LIC.

Purpose: insurance against death, partial or total permanent disability, critical illness

Can you please suggest me the best term plan. online or offline?

I have also Group Insurance of 25L by company.

regards,Posted on October 23rd, 2013

Sudhakar says:

I got the answer form LIC customer care. These rules are for newly applied policies. Existing policiesdo not have any impact with these rules.



Great ! . Thanks for confirming !



You should take it from HDFC Click2Protect !



I think you should surrender right now itself if you need money . Else make it paid up


Manish Chauhan says:These changes has already happened and applicable to new policies !



What is your risk apetite ? Can you invest for next 20 yrs without worrying much about the money ?


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Hi Shivaraj

I am not aware of this commission .



True



All other insurance companies are already using revised rates , thats the reason their premiums arealready lower


manyam says:

Hi Manish, thanks for clarification.. so can we expect revised rates also effect on term polices of LICas well..? or just related to endowment policies of LIC.



Yes you can expect better rates for LIC term plans as well


Bhavesh says:

Hi Manish,

Can you tell me about the LIC -Retirement & Enjoy plan, One of the LIC Agent gave me a clearquotation stating to invest 60076 per year from 24 years to 50 years, aftre 51 years LIC will provide3.1lakhs with 5% annual growth every year with respect to inflation till 75 years.this has Personal & Accidental coverage of 26lakhs and grows to 75 lakhs till your tenure, more over the amount youreceive every year from 51 years till 75 years is coming to approximately 1.2 Crore, after 75 years to100 years your Life coverage applicable of 25 laksh and no pension.

please let me know your thought on this and have u heard of this plan??


manyam says:

ok thanks



Is it given in written by LIC, or just printed by LIC agent on some colorful paper !

Posted on November 4th, 2013

girish naik says:

Dear manish,I have a policy jeevan saral, term 35 yrs premium 18375/3 months (72k + per anum ). I had takenthis on july 2011,now my question is if I pay upto 3 yrs then cose the policy how much will be returning to me. And if I


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close after 5 yrs full pymnt wat will be the returns. My intentiin is to get atleast the paid amt.. As Im not able to bear such huge amt and it seems like I m going to lot if I close now.. noe I m like cantpay vant close. Help please.. Even partoal surrender also leads loss only. Atleast let tje loss beless Better if get the answer im values(number). Thanks in advance



In any case the returns you would get is not going to be encouraging enough . The best will come

only when you complete the tenure . So better close it after 5 yrs . you will have to share with methe exact amount you would get after 5 yrs for understanding the returns !

Manish


ritesh says:

Dear Manish,Very thoughtful article ut damage has already been done for me and am planning to go for surrenderof all my (7) endowment policies with coverage of approx 26lac. I still have 11 yrs for the first policyto mature. Do you think its aright decision? I have already decided on having a term plan and am notpaying my Premium just to get my TERM PLAN before surrendering.

I will transfer the surrender amount to PPF and add the difference of Policy Premium between oldpolicies and Term Plan to PPF. I worked out the returns which showed how foolish I was before, butthen just wondering maybe I made a mistake in the excel sheet calculation? Can you give me link tosome of your return calculator where I can e sure about my calculation.I just shared this info to make other readers motivate/understand the wisdom i gathered from yourblogs (as well as from Ashal,Pattu, Subra etc) and to make right decisions.Thanks,ritesh


Sadananda Nayak says:

Dear Manish,

As per my understanding service tax is not applicable on ULIP / Endowment policy right? It isapplicable only on Term policy. Am I correct in my understanding?


Sandeep Nangrani says:

Plz find enclosed Service tax for different plans:

Term plan plus, Rider attached to it:ULIP plus, Rider attached to it:

1st year 12.36%, and 2nd yr onwards 12.36%

===================================

Traditional Endowment plus, Rider attached to them:Immediate Annuity plans plus, Rider att ached to them:

1st year 3.09%, and 2nd yr onwards 1.545% ===================================

Regards,Sandeep Nangrani.

Posted on December 3rd, 2013
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Shashank K S says:

Hi Manish,In our office cafeteria, an LIC agent is trying to sell policies putting same misleading ads as describedabove. Can i put a copy of your this article next to his counter??

Posted on December 9th, 2013


Sureplease go ahead ..


SURESH says:

Point 2: Increase in Surrender Value

Though the scale of Guaranteed Surrender Value has increased as per the new regulations, theactual surrender value is generally higher than Guaranteed Surrender Value. So, the impact of newscale proposed under new regulations to the policyholder is minimal.

Point 3. . Possible Decrease in Premium on LIC Policies

Though the new mortality table is lighter compared to old mortality table(around 10% lowermortality), there is hardly any difference in the premium. In particular, premiums will not come down .The reason for lowering of premium depends on the actual experience of the mortality. So, forexample earlier if companies were using 80% of the old mortality table may use say 88% of newmortality table. So the premium will not come down by using new (lighter) mortality table.

RegardsSuresh


SURESH says:

Service tax is applicae to both LIP and Traditional policies.Posted on December 10th, 2013

SURESH says:

Hi Dinesh,My understanding is that service tax is different for savings-cum-protection plans and pureprotec tion plans.RegardsSuresh


SURESH says:I have my own doubts whether you will see the reduction in premiums for protection plans throughonline channel.


SURESH says:

Premiums will not come down. Only the theoretical vase of mortality has changed.


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What is your doubt ?


SURESH says:

I mean that premiums will not reduce for polices sold through online channel.



Service tax should be paying on the the Insurance premium even in ULIP or endowment


Senthil says:

Hi Manish,

Could you please suggest me top three endowment / money back plans for a woman aged 26 yrs.



Hi Senthil

I myself dont support investments in endowment / moneyback plans, so wont be able to suggestthem .


Rajeev Rana says:

There is not at all any problem for claim settlement. But remember that policy should not lapse atany point of time in future. Please pay all future premiums on time and dont wait for grace period.


Rajeev Rana says:

If you observe the death claim settlement ratio for term insurance policies from different companies,you will understand that a pure term plan is like a paper umbrella which is o.k. during sunshine butusually doesnt work when it starts raining. A proper combination of different life insurance & financialproducts based on the individuals need can provide a complete peace of mind with 360 degreeprotection where nothing can penetrate to disturb ones plans



Rajeev

Can you share more on this , What do you mean by your statement ! . Why wont it benefit if someone has only a pure term plan ? What problems they will face ?


Rajeev Rana says:

Dear Mr. Manish,

The term insurance policy has a grace period of 15 days only for the premium payment. Whensomething goes wrong with the persons financial/physical condition, he normally fails/forgets orignore to pay the premium and the policy lapses accordingly. If the person dies during that period, noclaim is payable. If you check with different insurance companies you will find that the reason for non
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payment of the death claim was that most of the policies were lapsed when the claim was reported.Whereas on the other hand, this is not the case with endowment type of insurance policies. Also itcan provide some sort of financial support by way of loan on the policy.Endowment type policies combined with PPF kind of other instruments can provide the best financialsolution.As you understand that there is no substitute to LIFE INSURANCE, hence a complete financialplanning needs to proportionately c ombine various saving instruments with Life Insurance dependingon individuals needs and future plans. The basic formula for FINANCIAL SUCCESS is that, there mustalways be CONTINUATION OF INCOME in the family, which can be assured by insuring the personsearning potential during his earning span. This will help the family if anything untoward(Death/Disability) happens to the bread winner. Also if everything goes fine, it will help him to retirewith laughter lines and not the worry lines for his golden years making him self dependent with thehelp of pension from life insurance policys maturity proceeds.

I hope it will help you understand the logic behind my statement.

With Best Wishes Always,

Rajeev RanaB.E. (Mech.)M: +91 9321296940



Yes, I agree with you , but even with Endowment policies, they will not get INSURANCE part , if policy is lapsed, they only get the Savings part (incase the policy has run for more than 3 yrs) , Soin that case from pure life insurance purpose , endowment is no better than other form of policies . Ihope you will agree on that ?

Manish


Rajeev Rana says:

Relaxations in the matter death claim under policies where premiums are paid for full 2 years: (L.I.CsEndowment type policies) :I. Death of life assured were to occur after expiry of grace period:-a) But within 3 months from F.U.P.: Full S.A.+Bonus- Unpaid Premium.b) But within 3 to 6 months: Half the Sum Assured & No Bonus.c) But within 6 to 12 months: Proportionate Paid up value & No Bonus.

II. Under (b) & (c) above, no deduction towards any unpaid premium due before the death or after,within the policy year of death.

III. If the premiums are paid for at least 3 full years : Concession will be given if the death takesplace in the 4th year, as in (a) above. i.e. if the premium is not paid for the full year and the deathtakes place during that period, the full Sum Assured with Bonus declared with Bonus for unpaid yearis payable with recovery of unpaid premium.

IV. The above concessions are not available for : Mortgage Redemption plan, Pure Term & Convertible term plan, Bima Sandesh, Bima Kiran, Jeevan Sarita, Jeevan Shree & New Jeevan Dhara.

V. Under CDA plans & Children anticipated assurance plan if death takes place after the date of FUPbut within 12 months : All the premiums paid there under will be refunded on ex-gratia basis.

(Above concessions are available on basic sum assured only).

Most of the insurance people (more than 95%) are not aware of the above facts, hence they simplymisguide the public in many such cases..

I hope it will clear your doubts.
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Rajeev Rana+91 9321296940


Anandita says:

I have a question. Is, Svc Tax applicable for existing policies also from 2014?



Yes, all policies



Thanks for explaining Rajeev .


Naveen says:

Hi Manish, I am 41 years old, planning take Jeevan Saral policy, before 31st Dec2013 Old policy isbest or after 1st Jan (New policy is bestin all respectsplease give in details what will be plus andminus..Thanks-Naveen)


Jayanta says:

Dear Manish

I have purchased Jeevan Astha for 5 year tenure now I think this January it will be matured, can youtell me how much I will get ( I have invested Rs.25000/-) and what is the Tax treatment ( taxable ornon taxable) of the amount which I will get.

ThanksJayantaBangalore

Posted on December 31st, 2013

amit kumar jain says:

hi manish,

Can you pls answer 1 thingIs it a good idea putting money in LICS endowment polices for a diversification along with higher riskcover, that which is featured in Jeevan Mitra t riple c over or you believe that having a cheapest t ermcover with any company along with investments in mutual funds or reinvesting in fds is a betteroption for sure.Amit kumar JainGuwahati

Posted on January 2nd, 2014

lalit says:

JEEVAN anand is a polcy offering you insurance for 100 yrs of age. you pay your premium for say 15yrs and get back your mat value with bonus and FAB after 15 yrs, Even after that you are coveredtill 100 yrs of age. just consider how little you pay for an insurance till 100 yrs taking into yourpremia paid and maturity value you get vis-vis pure term plans. Another feature is you can surrenderthe policy even after maturity is paid i.e. say your policy matured at 55 yrs of Age. and you got
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Maturity paid then and again you can surrender it at 75 yrs of age. so my take is just continue withpolicy.

Posted on January 2nd, 2014


Amit

If you are ok with 5-6% return in long term with 100% surity , then you can surely go with anyEndowment plan (LIC or pvt) . Its a choice you make, one cant suggest anything !

Manish

Posted on January 4th, 2014


I believe it was Double your money scheme, so you will get that only ! and as the money is frominsurance product, it will not be taxable !



NaveenPlease open a thread on our forum to discuss this http://www.jagoinvestor.com/forum


dr salimuddin says:

good good.Great ! . Thanks for confirming !happy new year 2014


dr salimuddin says:Great article ! Very informative..happy new year


pramod khandelwal says:

I have a question. Is, Svc Tax applicable for existing policies also from 2014?


Lalatendu Patra says:

HiRegarding the IRDA guideline changes from January 2014 , Could you please clarify me the belowqueries.1. are these guidelines will be applicable to existing policies or not ?2. As the premiums are going down because of increase in mortality rate , where do i find the newpremium details ? are the sum assured going to affect because of lower premium amount. Are all thepolicies taken before 2014 will have lower premium amount ?


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