What do Investors with low-risk appetite look for? Guaranteed Benefits!
Money-back policies offer Guaranteed Survival Benefits at regular intervals. What makes these Money Back policies look attractive? They promise to provide life cover and periodic payments to the policyholder throughout the policy term.
But, are these policies as attractive in return as what they look at outside? Will LIC’s New Money Back Policy be a Good or Bad choice for those who are looking for Guaranteed Benefits?
In this article, let us evaluate LIC’s New Money Back plan by analysing its Advantages (pros) and Disadvantages (cons) and find out whether the LIC New Money Back Policy (Plan 920) is a Good or Bad option to invest your hard-earned money.
Let’s get started!
Table of Contents
1.)An Overview of LIC’s New Money-Back Policy
2.)What are the Features of LIC’s New Money Back Policy?
3.)Who is eligible for LIC’s New Money Back Policy?
4.)What are the Benefits of the LIC New Money Back Policy? Review in Detail
5.)Grace Period, Paid-up Policy, and Revival of LIC New Money Back Policy
6.)Free Look Period of LIC New Money Back Policy
7.)Surrendering LIC New Money Back Policy – Analysis
8.)What are the Advantages of LIC’s New Money Back Policy?
9.)What are the Disadvantages of LIC’s New Money Back Policy?
10.)Research Methodology of LIC New Money Back Policy – Analysis
- Benefit Illustration – IRR(Internal Rate of Return i.e. Interest Rate) Analysis of LIC New Money Back Policy
- i) LIC New Money Back Policy vs Mutual Funds, FDs and Government-Backed Schemes
- ii) LIC New Money Back Policy vs LIC New Bima Bachat
- iii) LIC New Money Back Policy vs LIC New Endowment Plan (Plan no.914)
1. An Overview of LIC’s New Money-Back Policy
It is a Non-Linked, Participating, Limited Premium, Individual, Life Assurance plan that offers a combination of protection against death throughout the term of the plan along with the periodic payment on survival at specified durations during the term. This special combination offers a lump sum payment to the surviving policyholders at maturity and financial support to the family of the deceased policyholder at any point before maturity.
Please check the official brochure of LIC New Money Back Plan for more policy details.
2. What are the Features of LIC’s New Money Back Policy?
- Fixed policy term of 20 years and fixed premium paying term of 15 years.
- Premiums can be paid regularly at yearly, half-yearly, quarterly, or monthly modes.
- Maturity Benefit includes bonuses.
3. Who is eligible for the LIC New Money Back Policy?
|Minimum Age at Entry||13 years|
|Maximum Age at Entry||50 years|
|Maximum Age at Maturity||70 years|
|Minimum Basic Sum Assured||1,00,000|
|Maximum Basic Assured||No Limit|
|Policy Term||20 years|
|Premium Paying Term||15 years|
4. What are the Benefits of the LIC New Money Back Policy? Review in Detail
The Death Benefit payable in case of death of the Life Assured during the policy term provided the policy is in force shall be “Sum Assured on Death” along with vested Simple Reversionary Bonuses and Final Additional Bonus, if any. Where “Sum Assured on Death” is defined as a higher of
- 125% of the 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.
In case of Life Assured surviving to the end of the specified durations provided all due premiums have been paid, 20% of the Basic Sum Assured shall be payable at the end of each of the 5th, 10th, and 15th LIC New Money Back policy years.
If the policy is still in effect at the end of the LIC New Money Back policy term, the “Sum Assured on Maturity” will be paid, along with any vested Simple Reversionary Bonuses and Final Additional Bonuses. Where 40% of the Basic Sum Assured is equal to the “Sum Assured on Maturity”
Participation in Profits
The LIC New Money Back policy shall participate in the profits of the Corporation and shall be entitled to receive Simple Reversionary Bonuses declared as per the experience of the Corporation, provided the LIC New Money Back policy is in force.
A final Additional Bonus may also be declared under the LIC New Money Back policy in the year when the policy results in a claim either by death or maturity.
5. Grace Period, Paid-up Policy, and Revival of LIC New Money Back Policy
In the LIC New Money Back Policy, a Grace Period of 30 days shall be allowed for payment of yearly half-yearly, or quarterly premiums and 15 days for monthly premiums from the date of the First unpaid premium.
If less than two years’ premiums have been paid and any subsequent premium is not duly paid, all the benefits under the LIC New Money Back policy shall cease after the expiry of the grace period from the date of the first unpaid premium and nothing shall be payable.
If at least two full years’ premiums have been paid and any subsequent premiums are not duly paid, the LIC New Money Back policy shall not be wholly void but shall continue as a paid-up policy till the end of the LIC New Money Back policy term.
A lapsed LIC New Money Back policy can be revived within a period of 5 consecutive years from the date of the first unpaid premium but before the Date of Maturity.
6. Free Look Period of LIC New Money Back Policy
If the LIC New Money Back Policyholder is not satisfied with the “Terms and Conditions”, the LIC New Money Back policy may be returned to us within 15 days beginning on the day the policy bond was received and should include reasons for returning the policy.
7. Surrendering LIC New Money Back Policy – Analysis
The LIC New Money Back policy can be surrendered at any time provided two full years’ premiums have been paid. On surrender of the policy, the Corporation shall pay the Surrender Value equal to higher of Guaranteed Surrender Value or Special Surrender Value.
8. What are the Advantages of LIC’s New Money Back Policy?
- Option to receive Death Benefit in instalments over the chosen period of 5 10 or 15 years instead of a lump sum amount.
- To enhance the cover, 4 rider options are available.
- Under the Settlement Option, you can receive Maturity Benefits in installments over the chosen period of 5 10, or 15 years instead of the lump sum amount.
- Rebate for high sum assured.
- A loan can be availed and the maximum loan amount is 90% of the surrender value.
9. What are the Disadvantages of LIC’s New Money Back Policy?
- The premium paying term and policy term are rigid.
- The Survival Benefit will not help to meet big-ticket expenses.
- The return on investment is low.
10. Research Methodology of LIC New Money Back Policy – Analysis
The earlier sections covered the basic features, Maturity Benefits, Death Benefits, and other benefits. In this section, let us evaluate the plan in terms of return. You need to make a decision based on the return calculation. Now, let us take a quote from the LIC portal and calculate the internal rate of return.
Benefit Illustration – IRR(Internal Rate of Return i.e. Interest Rate) Analysis of LIC New Money Back Policy
A 30-year-old male opts for a 5 Lakh Sum Assured LIC Money back policy. The policy term is 20 years and the premium paying term is 15 years. The annualised premium is ₹ 37,259.
|Policy Term||20 years|
|Premium Paying term||15 years|
|Sum Assured||5 Lakhs|
If he pays the premium regularly, he is entitled to Survival Benefit thrice during the policy term. The illustrations will show two different rates of assumed future investment returns, 8% p.a. and 4% p.a.
The value of your policy depends on several circumstances, including future investment performance, so these anticipated rates of return are not guarantees nor upper or lower limitations of what you might earn back.
|Age||Year||At 4% p.a.||At 8% p.a.|
|Annualised premium / Maturity Benefit||Death Benefit||Annualised premium / Maturity Benefit||Death Benefit|
The Survival Benefit of 1 lakh i.e., 20% of the Sum Assured is available thrice. The balance of 40% of the sum assured along with the bonus (non-guaranteed) is available at maturity.
In the 4% scenario, the final maturity amount is 2.70 Lakhs and the IRR calculation results in0.26% i.e., You get back what you paid already without any addition. Even if you park your money simply in your savings account, at least you would have earned better returns and the money is readily available for you at any time.
At the 8% scenario, the final maturity amount is 4.92 Lakhs and the IRR calculation results in 3.98%. This rate is lower than inflation.
The returns from LIC New Money Back policy are lower than what you could earn from a debt instrument (such as bonds or fixed deposits), it may not be the most financially prudent choice for you. Endowment / Money plans typically combine life insurance with savings, and therefore they result in lower returns compared to other investment options.
It’s critical to assess your risk tolerance and financial objectives. If you are more risk-averse or your main goal is to accumulate wealth, you might think about other investing strategies that have the potential to yield larger returns.
11. LIC New Money Back Policy vs Other Investment Options
LIC’s new money-back policy offers periodic cash flow. But it disturbs the compounding process. Compounding works better in the long term. For your Life cover you can choose a Pure Term Insurance policy and there are other investment options to invest your savings.
The choice will depend on your financial goals, risk tolerance, and investment horizon. Here are some options to explore.
LIC New Money Back Policy vs Mutual Funds, FDs and Government-Backed Schemes
Mutual funds offer a diversified investment portfolio, and you can choose funds that align with your risk tolerance and investment goals. They provide options for equity, debt, and hybrid funds.
Fixed Deposits (FDs) and Government-Backed Schemes:
If you prefer safety and stability, you can opt for fixed deposits with banks /other financial institutions and also Post-office small savings schemes. They offer a fixed interest rate and are a low-risk option.
Though we suggest some alternate investments, your mind may look for numbers. How far do these alternate investments score better than LIC’s New Money Back Policy in terms of returns? – To answer this question, we have gathered the potential returns of these alternate investments and given them in the table below (As of Oct 2023).
|Nifty 50 TRI (10-Year Return)||13.08%|
|SandandP BSE 500 TRI (10-Year Return)||14.72%|
|Equity Mutual Fund: Large Cap (10-year Avg)||8.20%|
|Equity Mutual fund: Multi Cap (10-year Avg)||15.34%|
|Equity Mutual Fund: ELSS (10-year Avg)||10.79%|
|RBI Floating Rate Bond||8.05%|
|Post Office Small Saving Schemes|
|5-year Time deposit||7.50%|
|National savings Certificate||7.70%|
The above illustration clearly shows that there is a plethora of investment options that offer better returns than the LIC New Money Back Policy. You need to pick an investment that aligns with your investment horizon and risk profile.
i) LIC New Money Back Policy vs LIC New Bima Bachat
Let’s see the features of LIC New Bima Bachat,
- Your requirement for liquidity would be satisfied by the loan facility offered by LIC New Bima Bachat. Option to receive Death Benefit in installments rather than a lump sum payment over a set period of five, ten, or fifteen years.
- There are two rider possibilities in LIC New Bima Bachat.
- Option to choose the Settlement option to take the Maturity Benefit in installments
To read the complete review of LIC New Bima Bachat please Click Here.
ii) LIC New Money Back Policy vs LIC New Endowment Plan (Plan no.914)
Let’s look at some of the advantages of the LIC New Endowment Plan (Plan no.914)
- There are five more riders available.
- The ability to accept the Death Benefit in stages.
- There is a borrowing option available.
Please Click Here To read the complete review of the LIC New Endowment Plan (Plan no.914).
12. LIC New Money Back Policy vs Other Investment Options – Review Conclusion
We discovered that it is not advisable to combine investments and insurance after analyzing the IRR of the LIC New Money Back Policy. This stands valid even when the LIC New Money Back Policy is compared with alternate investment choices.
Taking Pure Term Insurance for Life cover and Investing in Mutual Funds, Fixed Deposits (FDs) or Government Backed Schemes is a far better option compared with LIC’s New Money Back Policy.
13. Final Verdict on LIC New Money Back Policies – Good or Bad?
LIC’s New Money Back Policy offers a combination of financial protection and a source of periodic income. They are suitable for individuals who may require periodic payouts during the policy term. While evaluating the plan, we couldn’t find any special feature. This is a mediocre plan which falls short in terms of return.
The lower return on investment is due to the Survival Benefit and also partly because of the high agent commission. The poor survival Benefits slowly reduce the effectiveness of the investment component in this plan. Alternatively, starting early and remaining committed to a long-term investment approach can make a significant difference in achieving your financial objectives. Long-term investment and the power of compounding are two critical elements in building wealth and achieving financial goals.
Compounding is the process by which your invested money earns returns, and those returns, in turn, earn more returns over time. The longer you commit to a well-thought-out investment plan, the more time your money has to compound, exponentially increasing the growth of your wealth.
Therefore, you should carefully assess your financial goals and consider alternative investment options. To achieve this, instead of searching for a solution on social media sites like Quora, Facebook, Twitter, etc. it is better to consult a certified financial planner for a comprehensive financial plan.