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Will investing in LIC Index Plus help you generate alpha?
Should you look to invest in the LIC Index Plus Plan for better returns?
In investing, the Index refers to a passive investing strategy that aims to mimic broad market returns rather than picking individual stocks.
In this article let us review the investment strategy and the potential return of the LIC Index Plan by calculating IRR Analysis of the policy. This research study reveals how effective will this plan be for your Future Ambitions.
Table of Contents
1.)What is the LIC Index Plus Plan?
2.)What are the Features of the LIC Index Plus Plan?
3.)What are the Eligibility Criteria for the LIC Index Plus Plan?
4.)Benefits payable under the LIC Index Plus Plan.
- LIC Index Plus Plan Death Benefit
- LIC Index Plus Plan Maturity Benefit
5.)LIC Index Plus Plan Refund of Mortality Charges
6.)LIC Index Plus Plan Fund Options
7.)Various Charges under the LIC Index Plus Plan
8.)LIC Index Plus Plan Grace period, Discontinued policy, and Revival
9.)LIC Index Plus Plan Free Look Period
10.)Surrendering LIC Index Plus Plan
11.)What are the Advantages of the LIC Index Plus Plan?
12.)What are the Disadvantages of the LIC Index Plus Plan?
13.)LIC Index Plus Plan Research Methodology
- LIC Index Plus Plan Benefit Illustration – IRR Analysis
14.)LIC Index Plus Plan VS Other Investment Products
- LIC Index Plus Plan VS Pure Term + PPF / ELSS
- LIC Index Plus VS LIC Bima Shree
- LIC Index Plus VS LIC New Endowment Plan
15.)Final Verdict on LIC Index Plus Plan
1.)What is the LIC Index Plus Plan?
LIC’s Index Plus is a Non-Participating, Unit Linked, Non-Participating, Regular Premium, Individual Life Insurance plan. LIC’s Index Regular Premium, Individual Life Insurance plan.
It offers life insurance cover cum savings throughout the term of the policy. This is a non-participating product and hence the policy is not entitled to share any surplus (profits) during the term of the policy.
2.)What are the Features of the LIC Index Plus Plan?
- Life insurance cover throughout the policy term.
- Refund of mortality charges at maturity.
- Guaranteed Additions as a percentage of Annual Premium shall be added to the Unit Fund.
- Flexibility to choose the type of investment fund to invest the premiums as per your risk appetite.
- Settlement of death benefits either in a lump sum or in installments.
3.)What are the Eligibility Criteria for the LIC Index Plus Plan?
| Minimum Age at Entry | 90 days | |
| Maximum Age at Entry | Basic Sum Assured | Maximum Age at Entry |
| 7 / 10 times the annualised premium | 50 years | |
| 7 times the annualised premium | 60 years | |
| Minimum Maturity Age | 18 years | |
| Maximum Maturity Age | Basic Sum Assured | Maximum Maturity Age |
| 7 / 10 times the annualised premium | 85 years | |
| 7 times the annualised premium | 75 years | |
| Basic Sum Assured | Age at entry | Basic Sum Assured |
| 90 days – 50 years | 7 / 10 times the annualised premium | |
| 51 – 60 years | 7 times the annualised premium | |
| Minimum and Maximum Policy Term | Annualised premium | Minimum and Maximum Policy Term |
| Less than 48000 | 15 – 25 years | |
| 48000 and above | 10 -25 years | |
| Premium Paying Term | Same as Policy Term | |
| Premium Paying Mode | Yearly/Half Yearly/Quarterly/Monthly (NACH) | |
4.)Benefits payable under the LIC Index Plus Plan.
LIC Index Plus Plan Death Benefit
An amount equal to the highest of the following shall be payable
- Basic Sum Assured reduced by Partial Withdrawals, if any, made during the two years immediately preceding the date of death; or,
- Unit Fund Value as on date of intimation of death; or
- 105% of the total premiums received up to the date of death reduced by Partial Withdrawals, if any, made during the two years immediately preceding the date of death.
LIC Index Plus Plan Maturity Benefit
On survival of the life insured, the Unit Fund Value as of the date of maturity shall be rewarded as a Maturity Benefit.
LIC Index Plus Plan Refund of Mortality Charges
Depending on the life insurance coverage the Mortality Charges levied will be returned along with Maturity Benefit.
5.)LIC Index Plus Plan Fund Options
You have the option to choose any one of the following two funds to invest your premiums initially and at the time of switching.
| Asset Class | ||||
| Fund Name | Govt Securities / Corporate Bond | Money Market Instruments | Listed Equity Shares | Risk Profile |
| Flexi Growth Fund | 0-20% | 0-40% | 40-100% | Very High Risk |
| Flexi Smart Growth Fund | 0-20% | 0-40% | 40-100% | Very High Risk |
In general, other ULIPs in the market offer 6 – 10 funds. But here only two fund options are available. Both the funds have similar assets under management and similar risk profiles. Overall it doesn’t offer much flexibility or choice for an investor.
6.)Various Charges under the LIC Index Plus Plan
Premium Allocation Charge
The Percentage of the Premium will be charged as a Premium Allocation Charge.
| Policy year | Offline sale / Online sale |
| 1st year | 8% / 3% |
| 2nd to 5th year | 5.5% / 2% |
| Thereafter | 4% / 1.5% |
Mortality Charge
Mortality Charge is the cost of life insurance cover, which is age-specific and this will be taken at the beginning of each policy month by canceling the appropriate number of units out of the Unit Fund Value.
Accident benefit Charge
Accident Benefit Charge is the cost of LIC’s Linked Accidental Death Benefit Rider if opted for.
Fund management Charge
It remains the same for both fund options it is 1.35% of the Unit Fund.
Policy Administration Charge
The Policy Administration Charge shall be imposed at the start of every month beginning from the 6th policy year throughout the policy term.
Switching charge
Within a given policy year 4 switches shall be allowed free of charge and thereafter ₹ 100 per switch.
Partial Withdrawal Charge
A flat amount of ₹ 100 shall be deducted by canceling the appropriate number of units out of the Unit Fund Value.
Discontinuance Charge
It depends on the year of discontinuance and the premium amount. There is no discontinuance charge from the 5th policy year onwards.
Miscellaneous Charge
A flat amount of ₹ 100 will be deducted by canceling the appropriate number of units out of Unit Fund Value.
Inference from the charges
Generally, under any investment, there won’t be any charges for discontinuing the investment and withdrawing your money. However, under LIC Index Plus, there are charges for discontinuance and partial withdrawal.
Even for switching and Premium allocation, the plan levy charges. These charges will restrict your investment i.e., your gross premium is not invested as such. The net premium after deducting all charges gets invested. This will affect your return in the long run.
7.)LIC Index Plus Plan Grace period, Discontinued Policy and Revival
Grace Period
A grace period of 30 days will be allowed for payment of yearly or half-yearly or quarterly premiums and 15 days for monthly (NACH) premiums from the date of the first unpaid premium.
Discontinued Policy
Policy Discontinuance before 5 year’ lock-in period: After the grace period has expired, the remaining Unit Fund Value after reducing the appropriate Discontinuance Charge shall be transferred to the Discontinued Policy Fund.
The Proceeds of the Discontinued Policy Fund shall be paid to you at the end of the lock-in period and the policy shall terminate.
If the policy is discontinued after 5 5-year lock-in- period: Upon expiry of the grace period, in case of discontinuance of a policy due to non-payment of premium, the policy shall be converted into a reduced paid-up policy.
In such instances, the policy will be converted to a Paid-Up Sum Assured and the policyholder receives the entire Basic Sum Assured.
Revival
In case you opt to revive the policy during the Revival Period of 3 years from the date of the first unpaid premium or up to the date of Maturity, whichever is earlier, the policy shall be revived.
8.)LIC Index Plus Plan Free Look Period
If you are not satisfied with the “Terms and Conditions” of the policy, the policy may be returned within 30 days from the date of receipt of the Policy Document purchased through both physical and electronic modes.
To know more regarding terms and conditions you can refer to the LIC Index Plus Plan Policy Brochure
9.)Surrendering LIC Index Plus Plan
If the policy is surrendered during the 5-year lock-in period, then the Unit Fund Value after deducting the applicable Discontinuance Charge shall be transferred to the Discontinued Policy Fund.
The Proceeds of the Discontinued Policy Fund in respect of Policy as on the date of expiry of the lock-in period shall be payable to the Policyholder at the end of the 5-year lock-in period and the policy shall terminate.
If the policy is surrendered after the 5-year lock-in period: If you apply for surrender of the policy after the lock-in period, then the Unit Fund Value as on the date of intimation of surrender shall be payable to the Policyholder and the policy shall terminate.
10.)What are the Advantages of the LIC Index Plus Plan?
- Partial withdrawals are allowed to take care of liquidity needs.
- Option to enhance coverage by opting for LIC’s Linked Accident Benefit Rider.
- You have an option to switch between the two fund types.
11.)What are the Disadvantages of the LIC Index Plus Plan?
- No top-up premium shall be allowed under the plan.
- No loan facility shall be available under this plan
- No increase/decrease of Basic Sum Assured will be allowed under the plan.
- Low and moderate-risk fund options are not available.
12.)LIC Index Plus Plan Research Methodology
This segment deals with the calculation of potential return. As the LIC Index Plus Plan invests in the market, the risk involved in the investment should be evaluated. The return should be proportionate to the risk taken. Let us evaluate the return and risk in the LIC Index Plus Plan by taking a quote from the official website.
LIC Index Plus Plan Benefit Illustration – IRR Analysis
A 30-year-old male invests in the LIC Index Plus Plan. The Sum assured is ₹ 10 Lakhs. The Premium paying term and policy term is 15 years. The annualised premium is ₹ 1 Lakh. The fund value at the end of 15 years is receivable as a Maturity Benefit.
| Male | 30 Years |
| Sum Assured | 10 Lakhs |
| Policy term | 15 years |
| Premium paying term | 15 years |
| Annualised premium | 1,00,000 |
In this benefit illustration, it is assumed that the Projected Investment Rate of Return that LIC will be able to earn throughout the term of the policy will be 4% p.a. or 8% p.a., as the case may be.
The Projected Investment Rate of Return is not guaranteed and there are not any upper or lower limits of what you might get back as the value of your policy is dependent on numerous factors along with future investment performance.
| At 4% p.a. | At 8% p.a. | ||||
| Age | Year | Annualised premium / Maturity benefit | Death benefit | Annualised Premium / Maturity Benefit | Death benefit |
| 30 | 1 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 31 | 2 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 32 | 3 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 33 | 4 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 34 | 5 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 35 | 6 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 36 | 7 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 37 | 8 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 38 | 9 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 39 | 10 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 40 | 11 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 41 | 12 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 42 | 13 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 43 | 14 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 44 | 15 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 |
| 45 | 17,24,587 | 23,89,001 | |||
| IRR | 1.72% | 5.62% | |||
The fund value at the end of 15 years @ 4% Scenario is ₹ 17.24 Lakhs. The IRR for the 4% Scenario is 1.72%. Savings Bank account interest rate is more than the 4% Scenario IRR.
The fund value @ 8% scenario is ₹ 23.89 Lakhs. The IRR for the 8% Scenario is 5.62%. Bank fixed deposit yields more than the 8% scenario IRR.
Under both cases, the IRR is not proportionate to the risk taken. The returns also seem to fall below the inflation rate. This will ultimately affect your wealth accumulation process.
13.)LIC Index Plus Plan VS Other Investment Products
Under the LIC Index Plus plan the risk and return are not proportionate. Now, let us compare other investment returns with LIC Index Plus. For comparison, let us assume the same metric as seen in the above illustration. The Alternate investment vehicle should offer both life cover and investment opportunity.
i)LIC Index Plus Vs. Pure Term + PPF / ELSS
Instead of clubbing Life cover and investment, let us split these two components. For life cover, a pure term life insurance policy for a sum assured of ₹ 10 Lakhs would cost ₹ 4,200 p.a.
This leaves you with a balance of ₹ 95,800 which you can invest for your goals. You can choose an investment vehicle as per your goal and risk appetite.
| Pure Term Life Insurance Policy | |
| Sum Assured | 10 Lakhs |
| Policy term | 15 years |
| Premium paying term | 15 years |
| Annualised premium | 4,200 |
| Investment | 95,800 |
Out of ₹ 1 Lakh, pure term life insurance premium is paid and the balance is invested. Here, we have assumed that the balance amount is invested in the PPF Account or ELSS fund.
| Term Insurance + PPF | Term insurance + ELSS | |||||
| Age | Year | Term Insurance premium + PPF | Death benefit | Term Insurance premium + ELSS | Death benefit | |
| 30 | 1 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 31 | 2 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 32 | 3 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 33 | 4 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 34 | 5 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 35 | 6 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 36 | 7 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 37 | 8 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 38 | 9 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 39 | 10 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 40 | 11 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 41 | 12 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 42 | 13 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 43 | 14 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 44 | 15 | -1,00,000 | 10,00,000 | -1,00,000 | 10,00,000 | |
| 45 | 25,98,230 | 37,53,668 | ||||
| IRR | 6.60% | 10.81% | ||||
The final maturity value under the PPF account is ₹ 25.98 Lakhs. The IRR for Pure term and PPF combo results in 6.60%.
Under the ELSS fund, the final maturity value is subject to capital gain tax. The pre-tax redemption value is ₹ 39.99 Lakhs. The post-tax final maturity value is ₹ 37.53 Lakhs. The IRR for Pure term and ELSS combo results in 10.81% (post-tax return).
Under both scenarios, the yield is higher than inflation. This results in a faster accumulation of wealth. In the LIC Index Plus Plan, the potential return is low and this affects your investment journey.
| ELSS Tax Calculation | |
| Maturity value after 15 years | 39,99,964 |
| Purchase price | 14,37,000 |
| Long-Term Capital Gains | 25,62,964 |
| Exemption limit | 1,00,000 |
| Taxable LTCG | 24,62,964 |
| Tax paid on LTCG | 2,46,296 |
| Maturity value after tax | 37,53,668 |
ii) LIC Index Plus VS LIC Bima Shree
LIC Bima Shree Plan is specifically designed for High Net Worth Individuals to help them accomplish their Personal Financial Goals. It also offers better flexibility and convenience in terms of premium paying terms and policy terms.
To know more about LIC Bima Shree’s Benefits and Advantages we recommend you to read our article on:
LIC Bima Shree Review – Good or Bad Investment Option?
iii) LIC Index Plus VS LIC New Endowment Plan
LIC New Endowment Plan offers surviving policyholders offers lump sum payment at maturity or the untimely death of the policyholder before Maturity. Will this Maturity Benefit be sufficient enough to fulfill all your needs?
If you wish to critically analyse LIC New Endowment Plan then we would suggest you to refer our article on:
LIC New Endowment Plan (Plan no.914): An Insightful Review
14.)Final Verdict on LIC Index Plus
LIC Index Plus plan is a market-linked product offering life cover benefits. You pay the premium during the policy term and the fund value is receivable at maturity. The choice of fund options is limited. You have only high-risk fund options.
The risk is high but the returns are not proportionate to the risk. The potential return from LIC Index Plus is low due to various charges and the High Agent Commission.
Investing in this LIC Index Plus Plan will derail your financial plan. Also, the sum assured is inadequate.
You can channelise your savings into a better-yielding product to achieve your goals. Also, make sure, you have adequate life cover. For life protection, a pure-term life insurance policy is the perfect choice.
Make sure there is logical reasoning behind your Investment choices Instead of getting manipulated by influencers on Social Media Platforms like Quora, Facebook, Twitter, etc.
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