LIC New Money Back Plan - 20 years
Can the LIC’s New Money Back Plan – 20 years align with your needs for periodic payouts to achieve your goals?
Can the LIC’s New Money Back Plan – 20 years provide guaranteed returns along with life cover?
Can the LIC’s New Money Back Plan – 20 years provide the perfect combination of financial security and liquidity together?
In this review, we’ll explore the plan’s features, benefits, and limitations, offering valuable insights to help you evaluate whether it’s the right fit for your financial objectives.
What is the LIC New Money Back Plan – 20 years?
What are the features of the LIC New Money Back Plan – 20 years?
Who is eligible for the LIC New Money Back Plan – 20 years?
What are the benefits of the LIC New Money Back Plan – 20 years?
Grace Period, Paid-up and Revival of LIC New Money Back Plan – 20 years
Free Look Period of LIC New Money Back Plan – 20 years
Surrendering LIC New Money Back Plan – 20 years
What are the advantages of the LIC New Money Back Plan – 20 years?
What are the disadvantages of the LIC New Money Back Plan – 20 years?
Research Methodology of the LIC New Money Back Plan – 20 years
Benefit Illustration – IRR Analysis of LIC New Money Back Plan – 20 years
LIC New Money Back Plan – 20 years Vs. Other Investments
LIC New Money Back Plan – 20 years Vs. Pure-term + ELSS
Final Verdict on LIC New Money Back Policy – 20 years
LIC’s New Money Back Plan-20 years is a Par, Non-Linked, Life, Individual Savings plan. It offers an attractive combination of protection against death throughout the term of the plan along with the periodic payment on survival at specified durations during the term.
| Minimum Age at Entry | 13 years |
| Maximum Age at Entry | 50 years |
| Maximum Age at Maturity | 70 years |
| Policy Term | 20 years |
| Premium Paying Term | 15 years |
| Minimum Basic Sum Assured | ₹ 2,00,000 |
| Maximum Basic Assured | No Limit |
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 the higher of:
On 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 & 15th policy years.
On Life Assured surviving to the end of the LIC’s New Money Back Plan-20 years policy term, provided the policy is in force, “Sum Assured on Maturity” along with vested Simple Reversionary Bonuses and Final Additional Bonus, if any, shall be payable.
Where “Sum Assured on Maturity” is equal to 40% of the Basic Sum Assured.
Simple Reversionary Bonuses shall be declared annually at the end of each financial year. Once declared, they form part of the guaranteed benefits of the plan.
Final Additional Bonus may also be declared under the policy in the year when the policy results into a claim either by death or maturity at such rates and on such terms as may be declared by the Corporation.
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 one full year’s premiums have been paid and any subsequent premium is not duly paid, all the benefits under the 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 one full year’s premium(s) has been paid and any subsequent premiums are not duly paid, on completion of the first policy year, the policy shall not be wholly void but shall continue as a paid-up policy till the end of the LIC’s New Money Back Plan-20 years policy term.
A lapsed policy can be revived within a period of 5 consecutive complete years from the date of the first unpaid premium but before the Date of Maturity
If the Policyholder is not satisfied with the “Terms and Conditions” of the policy, the policy may be returned to the Corporation within 30 days from the date of receipt of the electronic or physical mode of the Policy Document.
The LIC’s New Money Back Plan-20 years policy can be surrendered after completion of the first policy year provided one full year’s premium(s) has been paid.
However, the policy shall acquire Guaranteed Surrender Value on payment of at least two full years’ premiums and Special Surrender Value after completion of the first policy year provided one full year’s premium(s) has been paid.
On surrender of an in-force or paid-up policy, the Corporation shall pay the Surrender Value equal to the higher Guaranteed Surrender Value and Special Surrender Value.
While the survival benefits under this plan are guaranteed, the maturity benefit depends on the bonuses, making it essential to estimate the potential returns. Let us analyse the plan’s returns to help make an informed decision.
Consider a 30-year-old male opting for a ₹5 Lakh Base Sum Assured (₹6.25 Lakh Death Benefit) under the LIC New Money Back Plan. The policy term is 20 years, with a premium-paying term of 15 years and an annual premium of ₹38,704.
| Male | 30 years |
| Base Sum Assured | ₹ 5,00,000 |
| Policy Term | 20 years |
| Premium Paying Term | 15 years |
| Annualised Premium | ₹ 38,704 |
Survival Benefits of ₹1 Lakh (20% of the Sum Assured) are paid three times during the LIC’s New Money Back Plan-20 years policy term. At maturity, the remaining 40% of the Sum Assured, along with bonuses (non-guaranteed), is paid.
Using illustrations based on two assumed rates of return—4% p.a. and 8% p.a.—we can evaluate the plan.
| At 4% p.a. | At 8% p.a. | ||||
| Age | Year | Annualised premium / Maturity benefit | Death benefit | Annualised premium / Maturity benefit | Death benefit |
| 30 | 1 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 31 | 2 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 32 | 3 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 33 | 4 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 34 | 5 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 35 | 6 | 61,296 | 6,25,000 | 61,296 | 6,25,000 |
| 36 | 7 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 37 | 8 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 38 | 9 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 39 | 10 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 40 | 11 | 61,296 | 6,25,000 | 61,296 | 6,25,000 |
| 41 | 12 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 42 | 13 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 43 | 14 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 44 | 15 | -38,704 | 6,25,000 | -38,704 | 6,25,000 |
| 45 | 16 | 1,00,000 | 6,25,000 | 1,00,000 | 6,25,000 |
| 46 | 17 | 0 | 6,25,000 | 0 | 6,25,000 |
| 47 | 18 | 0 | 6,25,000 | 0 | 6,25,000 |
| 48 | 19 | 0 | 6,25,000 | 0 | 6,25,000 |
| 49 | 20 | 0 | 6,25,000 | 0 | 6,25,000 |
| 50 | 2,70,000 | 4,92,500 | |||
| IRR | -0.24% | 3.52% | |||
At 4% p.a.
At 8% p.a.
The returns from the LIC New Money Back Plan are significantly lower than what debt instruments like fixed deposits or bonds could offer. Given its low returns and lack of flexibility, this plan may not be the best financial choice for achieving your goals.
The LIC New Money Back Plan delivers poor investment returns and provides inadequate life coverage due to its combined insurance and investment structure.
A better approach is to separate life insurance and investments, which can lead to higher returns and greater flexibility. Let’s illustrate this with a scenario:
A pure term life insurance policy with a sum assured of ₹6.5 Lakhs costs ₹4,300 annually, with a 20-year term and a premium payment duration of 10 years.
This leaves ₹34,404 annually for 10 years available for investment. For this analysis, we assume the investment is made in an ELSS fund.
| Pure Term Life Insurance Policy | |
| Sum Assured | ₹ 6,50,000 |
| Policy Term | 20 years |
| Premium Paying Term | 10 years |
| Annualised Premium | ₹ 4,300 |
| Investment | ₹ 34,404 |
In the LIC plan, the premium is paid for 15 years. With the term plan, the premium is paid for 10 years, leaving the full ₹38,704 available for investment during the remaining 5 years.
| Term insurance + ELSS | |||
| Age | Year | Term Insurance premium + ELSS | Death benefit |
| 30 | 1 | -38,704 | 6,25,000 |
| 31 | 2 | -38,704 | 6,25,000 |
| 32 | 3 | -38,704 | 6,25,000 |
| 33 | 4 | -38,704 | 6,25,000 |
| 34 | 5 | -38,704 | 6,25,000 |
| 35 | 6 | 61,296 | 6,25,000 |
| 36 | 7 | -38,704 | 6,25,000 |
| 37 | 8 | -38,704 | 6,25,000 |
| 38 | 9 | -38,704 | 6,25,000 |
| 39 | 10 | -38,704 | 6,25,000 |
| 40 | 11 | 61,296 | 6,25,000 |
| 41 | 12 | -38,704 | 6,25,000 |
| 42 | 13 | -38,704 | 6,25,000 |
| 43 | 14 | -38,704 | 6,25,000 |
| 44 | 15 | -38,704 | 6,25,000 |
| 45 | 16 | 1,00,000 | 6,25,000 |
| 46 | 17 | 0 | 6,25,000 |
| 47 | 18 | 0 | 6,25,000 |
| 48 | 19 | 0 | 6,25,000 |
| 49 | 20 | 0 | 6,25,000 |
| 50 | 14,40,218 | ||
| IRR | 10.47% | ||
To match the survival benefits of the LIC New Money Back Plan, equivalent amounts are withdrawn from the ELSS investment during the policy term.
At the end of 20 years, the remaining units in the ELSS are redeemed, with capital gains calculated only at final redemption, considering the LTCG exemption of up to ₹1.25 Lakhs per year.
| ELSS Tax Calculation | |
| Maturity value after 20 years | 15,51,312 |
| Purchase price | 5,37,560 |
| Long-Term Capital Gains | 10,13,752 |
| Exemption limit | 1,25,000 |
| Taxable LTCG | 8,88,752 |
| Tax paid on LTCG | 1,11,094 |
| Maturity value after tax | 14,40,218 |
The combined strategy of a term plan and ELSS investment yields an IRR of 10.47% (post-tax return). This significantly outperforms the LIC New Money Back Plan, offering higher returns and greater flexibility to withdraw funds as per your needs.
The lack of flexibility and low life coverage make the LIC New Money Back Plan a less appealing choice for achieving financial goals.
The LIC New Money Back Plan aims to provide regular liquidity to meet financial needs while offering life cover for your family.
However, the periodic survival benefits often misalign with actual requirements, leading to unnecessary spending or failure to provide meaningful support during financial emergencies.
This plan delivers below-average returns and offers inadequate insurance coverage, making it insufficient to address your family’s basic financial needs.
As a result, the LIC New Money Back Plan falls short in both insurance and investment aspects and it also has a high agent commission.
To build a solid financial foundation, it’s essential to assess your risk tolerance and financial goals. Based on these, create a diversified investment portfolio aligned with your investment horizon and risk profile.
Prioritize securing a pure-term life insurance policy to ensure adequate protection for your family. These policies offer affordable premiums and substantial coverage, serving as a reliable safety net.
Do Quora, Facebook, and Twitter have the final say when it comes to financial advice?
Avoid relying on money-back plans for goals requiring regular cash flow. Instead, for comprehensive financial planning, consult a Certified Financial Planner. They can help you choose investment products tailored to your unique goals and financial circumstances.
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