A stress-free life is the standard agenda for everyone.
To attain this stress-free life, we need a proper Financial Plan in hand with appropriate Investment Schemes to support.
Will LIC Jeevan Azad Plan help you in attaining a stress-free life?
Let us find out the answer through a detailed comparative analysis of its IRR in this article.
Table of Contents:
1.)What is LIC Jeevan Azad Plan?
2.)Features of the LIC Jeevan Azad Plan
3.)Eligibility Criteria of the LIC Jeevan Azad Plan
4.)Benefits of the LIC Jeevan Azad Plan
- Death Benefit
- Maturity Benefit
5.)The Grace Period, Revival & Paid-up of the LIC Jeevan Azad Plan
6.)Free Look Period in the LIC Jeevan Azad Plan
7.)Surrendering the LIC Jeevan Azad Plan
8.)Advantages of the LIC Jeevan Anand Plan
9.) Disadvantages of the LIC Jeevan Azad Plan
10.) Research Methodology
11.)IRR Analysis of the LIC Jeevan Azad Plan
12.)LIC Jeevan Azad Plan Vs Other Investment Alternatives
13.) LIC Jeevan Azad Plan Vs. Pure Term Insurance + PPF / ELSS
14.)Final Verdict on the LIC Jeevan Azad Plan
What is LIC Jeevan Azad Plan?
It is a Non-Linked, Non-Participating, Individual, Savings, Life Insurance plan which offers a combination of life protection and savings.
It provides financial support for your family in case of unfortunate death of the life assured during the policy term and also takes care of your liquidity needs through a loan facility. It also provides a guaranteed lump sum amount to the surviving life assured on the date of maturity.
Features of the LIC Jeevan Azad Plan
- It is a limited premium endowment policy.
- The policy provides a guaranteed lump sum amount at the time of maturity.
- The death benefit can be claimed either in lumpsum or in installments.
- It offers additional riders to enhance the life cover.
- The maturity amount can be received in installments instead of the lump sum.
Eligibility Criteria of the LIC Jeevan Azad Plan
The fundamental information we need to know to be eligible to enter the LIC Jeevan Azad Plan is mentioned below;
| Minimum Age at Entry | 90 days |
| Maximum Age at Entry | 50 years
65 years minus Policy years |
| Minimum Age at Maturity | 18 years |
| Maximum Age at Maturity | 70 years
65 years minus Policy years |
| Policy Term | 15 – 20 Years |
| Premium Paying Term | Policy Term minus 8 years |
| Minimum Basic Sum Assured per life | Rs. 2,00,000 |
| Maximum Basic Sum Assured per life | Rs. 5,00,000 |
Benefits of the LIC Jeevan Azad Plan
Death Benefit:
The death benefit payable on the death of the life assured during the policy shall be “Sum Assured on Death” where “Sum Assured on Death” is defined as higher of;
- ‘Basic Sum Assured’ or
- ‘7 times of Annualized Premium’
This Death Benefit shall not be less than 105% of the “Total Premiums Paid” up to the date of death.
Maturity Benefit:
On Life Assured surviving the stipulated Date of Maturity, ’Sum Assured on Maturity’ which is equal to ‘Basic Sum Assured’ shall be payable.
The Grace Period, Revival & Paid-up of the LIC Jeevan Azad Plan
Grace period:
A grace period of 30 days shall be allowed for a policyholder who chose a payment method of yearly or half-yearly or quarterly premiums and 15 days for monthly premiums payment policyholders from the date of the First Unpaid Premium.
Revival:
If the premiums are not paid within the grace period, then the policy will lapse. A lapsed policy can be revived, within 5 consecutive years from the date of the First Unpaid Premium.
Paid-up:
If less than two full years’ premiums have been paid and any subsequent premium is not duly paid, all the benefits under this policy shall cease after the expiry of the grace period from the date of the First Unpaid Premium and nothing shall be payable.
If, after at least two full years’ premiums have been paid and any subsequent premiums are not duly paid, this policy shall not be wholly void but shall subsist as a paid-up policy till the end of the policy term.
The Sum Assured on death & Sum Assured on Maturity shall be reduced proportionately. This is arrived at by multiplying the respective figure with the ratio of the total period for which premiums have already been paid bears to the maximum period for which premiums were originally payable.
Free Look Period in the LIC Jeevan Azad Plan
If the Policyholder is not satisfied with the Terms and Conditions of the policy, the policy may be returned within 15 days from the date of receipt of payment. If the policy was purchased through distance mode or online, then the free-look period will be extended up to 30 days.
Surrendering the LIC Jeevan Azad Plan
The policy can be surrendered by the policyholder at any time during the policy term provided two full years’ premiums have been paid. On surrender of the policy, the Corporation shall pay the Surrender Value equal to the higher Guaranteed Surrender Value or Special Surrender Value.
Guaranteed Surrender Value = Total premiums paid * Applicable Guaranteed Surrender Value factor
Advantages of the LIC Jeevan Anand Plan
- The benefits we receive from this policy are a guaranteed amount.
- There is a premium rebate for yearly & Half-yearly mode, high Sum Assured, and also for premium paying terms of more than 7 years.
- Loan can be availed up to 90% of the surrender value.
- Tax benefit as per Sec 80 C & Sec 10 (10D).
Disadvantages of the LIC Jeevan Azad Plan
- The sum assured is too low. The maximum sum assured allowed in this policy is Rs 5 Lakhs only (Other than Point-of-sale agent).
- The lock-in period is for 2 years.
- There is no loyalty addition or any other bonus for this policy.
- The maturity benefit from this policy will not aid you to achieve your financial goals.
- The potential return from this policy might not help to beat inflation.
For further details, you can refer to the LIC Jeevan Azad Policy Brochure.
Research Methodology
Any investment will be weighed based on the income and/or final maturity value. Here we should consider the time value of our money as well.
So, calculating the Internal Rate of Return would assist you in this process. The potential return can be compared with other investments to make an informed decision.
IRR Analysis of the LIC Jeevan Azad Plan
The Assumptions for Comparison:
| Male | 30 Years |
| Sum Assured | Rs. 5 Lakhs |
| Policy term | 20 Years |
| Premium paying term | 12 Years |
| Annual premium | Rs. 23,622 |
Let us assume a 30 – Year Old Male opts for the LIC Jeevan Azad Plan with a Sum Assured of Rs. 5 lakhs, the premium paying term is for 12 years, the Policy term is for 20 years & the annual premium is Rs. 23,622. If he pays the annual premium for 12 years, at the end of the 20th year, he receives the maturity amount.
| LIC Jeevan Azad | |||
| Age | Year | Annualized premium / Maturity benefit | Death benefit |
| 30 | 1 | -23,622 | 5,00,000 |
| 31 | 2 | -23,622 | 5,00,000 |
| 32 | 3 | -23,622 | 5,00,000 |
| 33 | 4 | -23,622 | 5,00,000 |
| 34 | 5 | -23,622 | 5,00,000 |
| 35 | 6 | -23,622 | 5,00,000 |
| 36 | 7 | -23,622 | 5,00,000 |
| 37 | 8 | -23,622 | 5,00,000 |
| 38 | 9 | -23,622 | 5,00,000 |
| 39 | 10 | -23,622 | 5,00,000 |
| 40 | 11 | -23,622 | 5,00,000 |
| 41 | 12 | -23,622 | 5,00,000 |
| 42 | 13 | 0 | 5,00,000 |
| 43 | 14 | 0 | 5,00,000 |
| 44 | 15 | 0 | 5,00,000 |
| 45 | 16 | 0 | 5,00,000 |
| 46 | 17 | 0 | 5,00,000 |
| 47 | 18 | 0 | 5,00,000 |
| 48 | 19 | 0 | 5,00,000 |
| 49 | 20 | 0 | 5,00,000 |
| 50 | 5,00,000 | ||
| IRR | 3.93% | ||
When we do the calculation based on the above cash flow, the IRR works out to be only 3.93%. This rate is not beneficial for anyone who is chasing his financial dreams.
A bank FD will yield a better return compared to LIC Jeevan Azad Plan. In bank FD you have more liquidity & also in a rising interest rate scenario, you have the opportunity to invest in better investment options.
So, LIC Jeevan Azad is not beneficial to build a corpus for your life’s financial goals. Moreover, even the death benefit is too low to meet your family’s financial needs.
LIC Jeevan Azad Plan Vs Other Investment Alternatives
LIC Jeevan Azad’s return is not even on par with a Debt Instrument Return & also the life cover is not adequate. This makes us search for other investment opportunities. So, for life cover, we can always opt for a Pure Term Insurance Policy. If you want to build a corpus, invest in a diversified portfolio.
We have assumed the same metrics as in the above illustration. The annual cash flow is Rs. 23622 & the sum assured is Rs. 5 lakhs opt to invest in a combination of Pure Term Insurance and Other Investment Alternatives for better comparison on its yield.
LIC Jeevan Azad Plan Vs. Pure Term Insurance + PPF / ELSS
A Pure Term Insurance policy for a Sum Assured of Rs 5 Lakhs will cost only Rs. 3,500 as a premium per annum. The policy term is for 20 years & the premium paying term is for 10 years.
In the above illustration, the premium paying term is for 12 years. So, in the next 2 years, you will be left with the full amount for your investment.
| Pure Term Policy | |
| Sum Assured | Rs. 5 Lakhs |
| Policy term | 20 Years |
| Premium paying term | 10 Years |
| Annual premium | Rs. 3500 |
| Excess Amount (investment) | Rs. 20,122 |
Here the chosen alternate investment is PPF (debt instrument) & ELSS (Equity instrument). The Term period for PPF is 15 years & it can be extended in a block of 5 years. But the premium paying term is 12 years. To fill the gap, it is assumed that in the last 3 years, a minimum subscription of Rs. 500 is paid.
| LIC Jeevan Azad | Term Insurance + PPF | Term insurance + ELSS | |||||
| Age | Year | Annualized premium / Maturity benefit | Death benefit | Term Insurance premium + PPF | Death benefit | Term Insurance premium + ELSS | Death benefit |
| 30 | 1 | -23,622 | 5,00,000 | -23,622 | 5,00,000 | -23,622 | 5,00,000 |
| 31 | 2 | -23,622 | 5,00,000 | -23,622 | 5,00,000 | -23,622 | 5,00,000 |
| 32 | 3 | -23,622 | 5,00,000 | -23,622 | 5,00,000 | -23,622 | 5,00,000 |
| 33 | 4 | -23,622 | 5,00,000 | -23,622 | 5,00,000 | -23,622 | 5,00,000 |
| 34 | 5 | -23,622 | 5,00,000 | -23,622 | 5,00,000 | -23,622 | 5,00,000 |
| 35 | 6 | -23,622 | 5,00,000 | -23,622 | 5,00,000 | -23,622 | 5,00,000 |
| 36 | 7 | -23,622 | 5,00,000 | -23,622 | 5,00,000 | -23,622 | 5,00,000 |
| 37 | 8 | -23,622 | 5,00,000 | -23,622 | 5,00,000 | -23,622 | 5,00,000 |
| 38 | 9 | -23,622 | 5,00,000 | -23,622 | 5,00,000 | -23,622 | 5,00,000 |
| 39 | 10 | -23,622 | 5,00,000 | -23,622 | 5,00,000 | -23,622 | 5,00,000 |
| 40 | 11 | -23,622 | 5,00,000 | -23,622 | 5,00,000 | -23,622 | 5,00,000 |
| 41 | 12 | -23,622 | 5,00,000 | -22,122 | 5,00,000 | -23,622 | 5,00,000 |
| 42 | 13 | 0 | 5,00,000 | 500 | 5,00,000 | 0 | 5,00,000 |
| 43 | 14 | 0 | 5,00,000 | 500 | 5,00,000 | 0 | 5,00,000 |
| 44 | 15 | 0 | 5,00,000 | 500 | 5,00,000 | 0 | 5,00,000 |
| 45 | 16 | 0 | 5,00,000 | 0 | 5,00,000 | 0 | 5,00,000 |
| 46 | 17 | 0 | 5,00,000 | 0 | 5,00,000 | 0 | 5,00,000 |
| 47 | 18 | 0 | 5,00,000 | 0 | 5,00,000 | 0 | 5,00,000 |
| 48 | 19 | 0 | 5,00,000 | 0 | 5,00,000 | 0 | 5,00,000 |
| 49 | 20 | 0 | 5,00,000 | 0 | 5,00,000 | 0 | 5,00,000 |
| 50 | 5,00,000 | 6,84,370 | 12,65,329 | ||||
| IRR | 3.93% | 6.16% | 10.43% | ||||
The above table clearly shows the maturity amount we receive under each alternative investment. This lumpsum amount will help you in achieving your life’s financial goals. Since the LIC Jeevan Azad Plan has no bonus attached, it just pays the Sum Assured as maturity proceeds. Due to inflation, this minuscule amount will not help you in hand to manage your finances.
The IRR for Pure term + PPF works out to be 6.16%. For a risk-free instrument, this return holds good. For pure term + ELSS, the IRR (Post Tax) works out to be 10.43%. These yields are better than LIC Jeevan Azad Plan and also over & above the inflation rate.
Final Verdict on the LIC Jeevan Azad Plan
LIC Jeevan Azad is a typical endowment plan where you pay a premium for a limited time & you receive a lump sum amount as the maturity benefit. The life cover is also provided in the policy term period. But the sum assured can’t exceed Rs. 5 lakhs (except under Point-of-Sale agent), making this policy uncompetitive among its counterparts in the market.
You as an investor neither get adequate life cover nor get a better return under the LIC Jeevan Azad Plan. So, always opt for a better-yielding investment option to have a stress-free life.
A Financial Planner will craft a proper financial plan with appropriate investment schemes or products to support your life’s financial goals to help take the stress of managing finances from you.
Leave a Reply