When we start our investment journey, the first and foremost aspect is insurance for ourselves and our family members.
LIC, India’s oldest and most sought-after Insurance company has launched a new life insurance plan with a Guaranteed Plan under the name of LIC Dhan Vriddhi (UIN: 512N362V01, Plan No.869). Is this ‘LIC Dhan Vriddhi’ a Good or Bad investment option for you, and your dependents?
In this article, we will dive deeper and analyze if this insurance policy is one to go to. We will also make comparative studies with other similar insurance plans and analyze their performance and Advantages(pros) and Disadvantages(cons).
Table of contents
1.)What is the “Dhan Vriddhi” Plan from LIC?
2.)How to Buy the LIC Dhan Vriddhi Plan?
3.)Key Features of the LIC Dhan Vriddhi Plan – Analysis
4.)Eligibility Criteria of LIC Dhan Vriddhi Plan – Analysis with Illustration
5.)Review of Benefits under LIC Dhan Vriddhi Plan
6.)Guaranteed Additions in LIC Dhan Vriddhi Plan: Analysis with Illustration
7.)Other Benefits of LIC Dhan Vriddhi Plan – Review
8.)Settlement Option for Maturity Benefits in LIC Dhan Vriddhi Plan
9.)Policy Loan in LIC Dhan Vriddhi Plan with Illustrationn
10.)Free Look Period of the LIC Dhan Vriddhi Plan
11.)Surrendering LIC Dhan Vriddhi Plan – Analysis
12.)Advantages of LIC Dhan Vriddhi Plan – Analysis
13.)Detailed Insight of LIC Dhan Vriddhi Plan with illustration
14.)So, what should we do?
- i)Life cover in place of LIC Dhan Vriddhi Plan
- ii)LIC Dhan Vriddhi Plan vs PPF:
- iii)LIC Dhan Vriddhi Plan vs ELSS:
- iv)LIC Dhan Vriddhi Plan vs. LIC Dhan Varsha Plan
- v)LIC Dhan Vriddhi Plan vs LIC Dhan Rekha Plan
1. What is the “Dhan Vriddhi” Plan from LIC?
LIC’s Dhan Vriddhi is a Non-Linked, Non-Participating, Individual, Savings, Life Insurance plan that offers a combination of protection and savings.
This plan provides financial assistance to the family in the event of the untimely death of the life assured within the policy term. It also gives a Guaranteed Lump Sum amount for the living life assured on the date of maturity.
Please refer to the official brochure of LIC Dhan Vriddhi for more Policy Details.
2. How to Buy the LIC Dhan Vriddhi Plan?
This plan can be purchased Offline through agents/other intermediaries including Point of Salespersons-Life Insurance (POSP-LI) / Common Public Service Centers (CPSC-SPV) as well as Online directly through the official LIC website.
3. Key Features of the LIC Dhan Vriddhi Plan – Analysis
- Single Premium Plan
- Options to choose the LIC Dhan Vriddhi Policy Term and the Death Cover
- Guaranteed Additions throughout the LIC Dhan Vriddhi Policy term
- Higher Guaranteed Additions for LIC Dhan Vriddhi policies with higher Basic Sum Assured
- Lumpsum Benefit on Death or Maturity is available in LIC Dhan Vriddhi.
- Option to take Death Benefit in Instalments and Settlement Option on Maturity
- Option to choose riders i.e. LIC’s Accidental Death and Disability Benefit
- Policy Loan available
- The Basic Sum Assured shall be in multiples of `5,000/
4. Eligibility Criteria of LIC Dhan Vriddhi Plan – Analysis with Illustration
|Minimum Age at Entry||90 days (completed) for policy term 18 years|
|3 years (completed) for policy term 15 years|
|8 years (completed) for policy term 10 years|
|Maximum Age at Entry||For Policy term 10 years:|
|Option 1: 60 years (nearer birthday)|
|Option 2: 40 years (nearer birthday)|
|For Policy term 15 years:|
|35 years (nearer birthday) for both the options|
|For Policy term 18 years:|
|32 years (nearer birthday) for policy term 18 years|
|Minimum Age at Maturity||18 years (completed)|
|Maximum Age at Maturity||Option 1: 78 years (nearer birthday)|
|Option 2: 50 years (nearer birthday)|
|Policy Term||10, 15,18 years|
|Mode of Premium Payment||Single premium|
|Minimum Basic Sum Assured||Rs. 1,25,000|
5. Review of Benefits under LIC Dhan Vriddhi Plan
Death Benefit: Death Benefit payable, on the death of the life assured during the LIC Dhan Vriddhi policy term after the date of risk initiation but before the Maturity Date, shall be “Sum Assured on Death” along with accrued Guaranteed Additions. “Sum Assured on Death” shall depend on the option chosen by the LIC Dhan Vriddhi policyholder as below
Option 1 of LIC Dhan Vriddhi: For the selected Basic Sum Assured, 1.25 times the Tabular Premium will be given. The maturity funds will not be tax-free.
Option 2 of LIC Dhan Vriddhi: 10 times Tabular Premium for the chosen Basic Sum Assured. The maturation proceeds would be Tax-free.
Maturity Benefit in LIC Dhan Vriddhi: On Life Assured surviving the stipulated Date of Maturity, “Basic Sum Assured” along with accrued Guaranteed Additions shall be payable in LIC Dhan Vriddhi.
6. Guaranteed Additions in LIC Dhan Vriddhi Plan: Analysis with Illustration
The Guaranteed Additions shall accrue at the end of each LIC Dhan Vriddhi policy year, throughout the policy term, and shall depend on the Option Chosen, Basic Sum Assured, and the LIC Dhan Vriddhi Policy Term.
|Guaranteed Additions (per Rs.1000 Basic Sum Assured)|
|Option 1||Option 2|
|Basic Sum Assured||Policy Term 10 years||Policy Term 15 years||Policy Term 18 years||Policy Term 10 years||Policy Term 15 years||Policy Term 18 years|
|Rs. 1,25,000 to Rs. 2,45,000||60||65||65||25||30||30|
|Rs. 2,50,000 to Rs. 6,95,000||65||70||70||30||35||35|
|Rs. 7,00,000 and above||70||75||75||35||40||40|
7. Other Benefits of LIC Dhan Vriddhi Plan – Review
Two optional riders are available by payment of an additional premium at inception only:
1) LIC’s Accidental Death and Disability Benefit Rider
2) LIC’s New Term Assurance Rider
8. Settlement Option for Maturity Benefits in LIC Dhan Vriddhi Plan
You have the choice to get your Maturity Benefit gradually over 5 years instead of getting all the money at once
The option to take Death Benefit in Instalments is available in the LIC Dhan Vriddhi Plan.
You have the choice to get your Death Benefit gradually over 5 years instead of getting all the money at once.
The installments will be paid in advance at yearly half-yearly quarterly or monthly intervals, as opted for, subject to minimum installment amount for different modes of payments being as below.
|Mode of Instalment payment||Minimum instalment amount(Rs)|
9. Policy Loan in LIC Dhan Vriddhi Plan with Illustration
The loan can be availed under this plan at any time during the policy term after three months from completion of the policy (i.e., 3 months from the Date of issuance of LIC Dhan Vriddhi policy) or after the expiry of the Free-Look Period, whichever is later subject to the terms and conditions as the Corporation may specify from time to time applies to LIC Dhan Vriddhi.
|Option||Maximum Loan (as a percentage of Surrender value)|
|Policy Term – 10 years||Policy Term15 years||Policy Term18 years|
10. Free Look Period of the LIC Dhan Vriddhi Plan
If you are not satisfied with the “Terms and Conditions” of the LIC Dhan Vriddhi Plan, then it may be returned to the Corporation within 30 days from the date of receipt by the policyholder.
11. Surrendering LIC Dhan Vriddhi Plan – Analysis
The policyholder can choose to surrender the policy at any point during its term. When this happens, the amount you receive, known as the Surrender Value, will be either the higher of the Guaranteed Surrender Value or the Special Surrender Value.
The Guaranteed Surrender Value (GSV) payable under the LIC Dhan Vriddhi policy shall be:
- During the First three Policy Years: 75% of the Single Premium of LIC Dhan Vriddhi Policy.
- Thereafter: 90% of the Single Premium of LIC Dhan Vriddhi policy.
12. Advantages of LIC Dhan Vriddhi Plan – Analysis
- One picks how long he/she wants the policy to last and chooses the plan they like.
- One-time investment.
- The benefit that you get after the period ends is available, which may help with your financial needs. Zero confusion.
- You can add an extra option to increase your insurance coverage.
13. Detailed Insight of LIC Dhan Vriddhi Plan with illustration
Okay, that was all the basic information from the LIC policy’s brochure. But let’s dissect the policy and analyze whether this is suitable for commoners.
For all insurance, we should be doing at least 2 checks to fully understand the policy.
We will do a study on the company offering the plan and the most important aspect internal rate of return (IRR)from this policy.
a) The Brand:
LIC. That’s it. That’s the statement on the brand. No questions asked.
If the same plan had been floated by other insurance companies, we could have analyzed several aspects like the track record, claim settlement ratio, and so on and could have made the feasibility of whether the company would be able to provide the so-called Guaranteed Returns. Without an iota of doubt, you will get the guaranteed money back at maturity just because the company is LIC.
b) Expected returns.
Now comes the real analysis and the answers that we have all been looking for.
Being a non-linked and non-participating plan, we exactly know how much our plan is going to benefit us by the end of the tenure. Let’s now look at the returns IRR (Internal Rate of Return i.e. Interest Rate) and see if this is worthy enough.
Policy Term-15 Years
Basic Sum Assured-Rs 10,00,000
Premium Amount-Rs 8,96,715
Age -30 Years
|Policy Year||Net cash Flows|
|1||-896715||Single premium payment|
|16||2125000||Maturity Benefit = BSA + GA|
|IRR(Return on Maturity)||5.92%|
In the above illustration, the IRR is calculated at 5.92%.
A 5.9 % pre-tax return over 15 years, does it sound like a good plan to invest? Certainly not.
There is one more caveat to this. As per the new rule mentioned in our FY 23-34 Budget, If the total annual premium for life insurance policies issued on or after 1st April 2023 exceeds ₹5 lakhs, they will be required to pay taxes on the maturity amount.
Assuming you come under the 30% bracket, this IRR comes to 4.1%. This is less than your savings bank interest rate.
Policy Term-15 Years
Basic Sum Assured-Rs 10,00,000
Premium Amount-Rs 8,05,434
Age -30 Years
|Policy Year||Net cash Flows|
|1||-805434||Single premium payment|
|16||1600000||Maturity Benefit = BSA + GA|
|IRR(Return on Maturity)||~5%|
In the above illustration, the IRR is calculated at 5%.
Here again, the premiums paid are more than 5 lakhs, which means the proceeds are taxed at your tax slab.
Assuming a 30% slab, this 5 % post-tax return turns into a meager 3.5 %.
One point to be noted here is that in both the options, the ages play a major role and determine the IRR. Even then the IRR differs only by 0.2%.
These are also less than our current inflation of 6.2% this quarter (Jul-23). So, these plans erode your wealth, rather than building them.
14. So, what should we do?
At the outset, insurance is not an investment, and it has to be kept separate. They shouldn’t be mixed as the very basic needs and asks for both of them are different. Insurances safeguard you and your family from any adverse situations.
Investments on the other hand increase your net worth. You can read a detailed study as to why these 2 have to be kept separated in the article on Value research to get a deeper understanding of this concept.
So, let’s keep it simple.
Insurance for you and your family. –Term insurance
A long-term income generation option under EEE (Exempt Exempt Exempt category)-PPF or an ELSS depending on your risk capability.
Let’s work out how this works keeping both the investment and the insurance separate.
We will substitute each component of this policy with other investments and see what we end up with.
i) Life cover in place of LIC Dhan Vriddhi Plan
This aspect can be taken care of by a Term Plan under the Single Payment category of
|Sum Assured on death||21 Lakhs|
|Policy term||15 years|
|Premium (single pay)||2.1 Lakhs|
The above substitute plan will provide the same Death Benefit as option 1 but at a much lower cost.
Now we can invest the rest 6.86 lakhs in other instruments either in a PPF or an ELSS fund.
ii) LIC Dhan Vriddhi Plan vs PPF:
A Conservative investor can consider investing in PPF.
Given the restriction of 1.5 lakh per year for the PPF contribution and the minimum contribution of 500 per year, we can split this investment into annual investments into PPF.
As per the above calculation, we get a return of about 12.39 lakh from our investment of ~ 68,6,000. This is at a return of about 7.1 % which is the current interest rate.
Since the PPF comes under the EEE category where the returns investment, interest/return, and maturity are tax-free we get the same amount as is without any tax.
This investment gets us 7.1% vs. the 4.2% under option 1 of this LIC plan.
Therefore, the combination of Term insurance and PPF can effectively provide the necessary coverage while also offering higher capital appreciation with a better CAGR compared to the LIC plan.
As a result, choosing such an investment strategy might yield more favorable outcomes than deciding on the LIC Dhan Vriddhi plan.
iii) LIC Dhan Vriddhi Plan vs ELSS:
Investors who can afford to take some risks can go in with the ELSS option.
You have the option to invest the amount of 6,86,000 either by contributing 1.5 lakhs per year under Section 80C to avail of a tax rebate, or you can choose to invest it as a lump sum for a 15-year duration.
If the remaining amount of 6,86,000 had been invested as a lump sum, the total returns would have been approximately 48 lakhs, achieving a CAGR of around 14% through investment in a strong ELSS fund with solid fundamentals over the same 15-year span.
This outcome is more than twice the advantages presented by Option 1, isn’t it?
Now when it comes to the taxes, since it is an ELSS fund, we always end up with the long-term capital gain (LTCG).
LTCG income tax on mutual funds for all equity-oriented schemes is charged at the rate of 10% on capital gains over ₹1 lakh irrespective of the income tax slab. So, the final corpus drops to ~43.5 lakhs.
This equates to a CAGR of about ~13%, still up and over our 4.2% CAGR which we obtained from Option 1.
In both the above examples we chose a life cover same as the benefits of the LIC policy plus we invested in either PPF or ELSS and would have got astounding results. Aren’t these a better alternative to this LIC policy?
iv) LIC Dhan Vriddhi Plan vs. LIC Dhan Varsha Plan
Please read the complete review of “LIC Dhan Varsha” HERE! It is a policy with a single premium. This plan provides financial support to your family in the event of your untimely death throughout the duration of your policy.
v) LIC Dhan Vriddhi Plan vs LIC Dhan Rekha Plan
Please read the complete review of the LIC Dhan Rekha Plan” HERE! This plan claims to offer an enticing blend of security and savings. It provides coverage for both the policyholder and their family by claiming to provide financial support in the event of an untimely death.
15. LIC Dhan Vriddhi Plan vs Other Investment Plans – Review Conclusion
After comparing and analyzing the LIC Dhan Vriddhi Plan with all other alternate investment options, it is clear that Term Insurance + ELLS or PPF is a better option for your life protection as well as investment goals.
16. Final Verdict of LIC Dhan Vriddhi Plan – Good or Bad?
Well, the writing is on the wall.
When choosing investments choose an investment that can effectively counter inflation over the long term and when choosing your insurance do go for the maximum coverage for you and your family
Insurance companies use gimmicks like “Guaranteed Returns” to entice people into buying these plans.
Do not fall prey to such policies by reading reviews on social media platforms like Quora, Facebook, Twitter etc.
And do not invest in any insurance plan that combines insurance and investments.
The only party who is rewarded with such plans are the agents who lure people into such plans for their high agent commission.
For better investment alternatives, it’s advisable to consult a financial advisor. They can help you determine the most suitable investment option for your portfolio.