Warning! LIC SIIP Plan is not a Mutual Fund SIP. It is a ULIP named SIIP. Don’t get carried away with the name.
You may need to analyse the plan or product fully before investing in it.
What are the Advantages(pros) and Disadvantages(cons) of LIC SIIP?
Is the LIC SIIP a Good or Bad option to get the maximum returns required for your financial well-being?
In this article, let us analyse the LIC Plan – “LIC Systematic Investment Insurance Plan”. This detailed review will help you to understand the product – LIC’s SIIP.
Table of Contents
1.)An Overview of LIC SIIP
2.)Features of LIC SIIP – Analysis
3.)Eligibility Criteria of LIC SIIP – Illustration
4.)Review of LIC SIIP Benefits in detail
5.)LIC SIIP Fund options – Analysis With Illustration
6.)Various charges under LIC SIIP – Analysis
7.)The Grace Period, Discontinuance and Revival of LIC SIIP – Analysis
8.)Free Look Period of LIC SIIP
9.)Surrendering LIC SIIP – Analysis
10.)Advantages of LIC SIIP – Analysis
11.)Disadvantages of LIC SIIP – Analysis
12.)Research Methodology Of LIC SIIP – Review
- LIC SIIP Vs. Pure Term Insurance + PPF / ELSS
- LIC SIIP vs. LIC Jeevan Lakshya
- LIC SIIP vs. LIC Jeevan Azad
1. An Overview of LIC SIIP
LIC’s SIIP is a Unit Linked, Non-Participating, Regular Premium, Individual Life Insurance plan. It offers insurance cum investment cover throughout the Term of the Policy. You can invest your premiums in one of four different types of investment funds.
For more Policy details, Click Here to download the LIC SIIP Policy brochure.
2. Features of LIC SIIP – Analysis
- You may pay premiums regularly at yearly, half-yearly, quarterly, or monthly intervals.
- Four fund options are available for investment.
- Guaranteed additions are added to the Fund Value.
- Rider options are available.
- Partial withdrawals are allowed after the lock-in period.
3. Eligibility Criteria of LIC SIIP – Illustration
|Minimum / Maximum Basic Sum Assured||Age below 55 years – 10 times the annualised premiumAge 55 years & Above – 7 times the annualised premium|
|Maximum Purchase Price||No Limit|
|Minimum Age at Entry||90 days|
|Maximum Age at Entry||65 years|
|Minimum Age at Exit||18 years|
|Maximum Age at Exit||85 years|
|Policy Ter||10 -25 years|
|Premium paying Term||Same as the Policy Term|
|Premium||Monthly – ₹ 4000Quarterly – ₹ 12000Half-yearly – ₹ 22000|
Annual – ₹ 40,000
4. Review of LIC SIIP Benefits in detail
Death Benefit in LIC SIIP
On death before the Date of Commencement of Risk: An amount equal to the Unit Fund Value shall be payable.
On death after the Date of Commencement of Risk: 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-year period immediately preceding the date of death; or,
- Unit Fund Value; or
- 105% of total premiums received up to the date of death, less any partial withdrawals made during the two years preceding the date of death.
Maturity Benefit in LIC SIIP
On Life Assured surviving the date of maturity provided all due premiums under the Policy have been paid, an amount equal to Unit Fund Value shall be payable.
Refund of Mortality Charges in LIC SIIP
On Life Assured surviving the date of maturity, an amount equal to the total amount of mortality charges deducted in respect of life insurance cover shall be payable along with the Maturity Benefit.
Guaranteed Additions of LIC SIIP
Guaranteed Additions as a percentage of one Annualized Premium, as mentioned in the table below shall be added to the Unit fund on completion of a specific duration of Policy years provided all due premiums have been paid and the Policy is in force.
|End of Policy Year||Guaranteed Additions (as a percentage of one Annualized Premium)|
5. LIC SIIP Fund options – Analysis With Illustration
The allocated premiums will be utilized to buy units as per the fund type opted by the Policyholder out of the four fund type options available. Various types of fund options and their investment patterns are as under:
|Fund Type||Government / Government Guaranteed Securities / Corporate Debt||Short-term investments such as money market instruments||Listed Equity Shares||Risk Profile|
|Bond Fund||Not less than 60%||Not more than 40%||NIL||Low Risk|
|Secured Fund||Not less than 45% & not more than 85%||Not more than 40%||Not less than 15% & not more than 55%||Low to Medium Risk|
|Balanced Fund||Not less than 30% & not more than 70%||Not more than 40%||Not less than 30% & not more than 70%||Medium Risk|
|Growth Fund||Not less than 20% & not more than 60%||Not more than 40%||Not less than 40% & not more than 80%||High Risk|
6. Various charges under LIC SIIP – Analysis
Premium Allocation Charge
This is the percentage of the premium received that is allocated to charges.
|Premiums||Offline sale||Online sale|
|2nd to 5th Year||5.50%||2%|
|6th Year and Thereafter||3%||1%|
Mortality Charge is the cost of life insurance coverage, which is age-specific and this will be taken at the beginning of each Policy month by canceling an appropriate number of units. This charge shall depend upon the Sum at Risk.
The rate of Mortality Charge per annum per Rs. 1000 Sum at Risk for some of the ages in respect of a healthy life are as under:
Accident Benefit Charges (if LIC’s Linked Accidental Death Benefit Rider is opted for):
This charge will be taken at the beginning of each month by canceling an appropriate number of units out of Unit Fund and shall be at the rate of Sum AssuredPolicy Per Policy year, ₹ 0.40 per thousand Accident Benefit Sum Assured.
Fund Management Charge
This is a charge levied as a percentage of the value of the assets. 1.35% p.a. of Unit Fund for all the four fund types. 0.50% p.a. of Unit Fund for “Discontinued Policy Fund”.
Within a given Policy year 4 switches will be allowed free of charge. Subsequent switches made in that year will incur a Switching Charge of Rs. 100 per switch.
Partial Withdrawal Charge
A flat amount of Rs. 100/- shall be deducted by canceling an appropriate number of units out of the Unit Fund Value on the date on which partial withdrawal takes place.
This is a Charge levied by canceling the appropriate number of units out of the Unit Fund Value as of the date of discontinuance of the Policy. The charge depends on the year of discontinuance and the premium amount.
This is a charge levied for an alteration during the contract and shall be a flat amount of Rs. 100/- which will be deducted by canceling an appropriate number of units out of Unit Fund Value.
Inference from Charges – Some of the charges mentioned above are unnecessary like Miscellaneous charges, charges for switching your own money, and charges for withdrawing your own money. So, this makes ULIP unattractive when compared to other market-linked products.
7. The Grace Period, Discontinuance and Revival of LIC SIIP – Analysis
A grace period of 30 days will be allowed for payment of yearly half-yearly or quarterly premiums and 15 days for monthly premiums.
If the Policy is discontinued during the 5-year lock-in period: Upon expiry of the grace period, the Unit Fund Value after deducting the Discontinuance Charge shall be converted into monetary Terms. This monetary amount shall be transferred to the Discontinued Policy Fund and the risk cover and rider cover, if any, shall cease. 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 the expiry of 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. The benefits under the Policy shall be reduced proportionately in the ratio of the total number of premiums paid to the original number of premiums payable under the Terms and conditions of the LIC SIIP Policy.
Revive the Policy within the revival period of three years from the date of the first unpaid premium or up to the date of maturity, whichever is earlier.
8. Free Look Period of LIC SIIP
If you are not satisfied with the “Terms and Conditions” of the Policy, the Policy may be returned within 15 days (30 days in case of Online sale) from the date of receipt of the Policy.
9. Surrendering LIC SIIP – Analysis
If the Policy is surrendered during the 5-year lock-in period: If you apply for surrender of the Policy during the 5-year lock-in period, then the Unit Fund Value after deducting the Discontinuance Charge shall be converted into monetary Terms. This monetary amount shall be transferred to the Discontinued Policy Fund. The Proceeds of the Discontinued Policy Fund in respect of the Policy shall be payable at the end of the lock-in period.
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 surrender shall be payable. There will be no Discontinuance Charge in LIC SIIP.
10. Advantages of LIC SIIP – Analysis
- Policy Terms can be chosen as per preference.
- Guaranteed addition will boost your Fund Value.
- There are four options and you have the flexibility to switch between these funds.
- Riders can be added to the base Policy.
- Mortality charges are returned at the end of the Policy Term.
- Partial withdrawal helps to meet emergencies.
- Death Benefit can be received in installments under the Settlement option.
11. Disadvantages of LIC SIIP – Analysis
- The Lock-in period is 5 years for surrendering and partial withdrawal.
- Numerous charges are levied under the plan.
- The Sum Assured is too low.
- A loan option is not available.
- Limited fund options are available when compared to other ULIP products available in the market.
12. Research Methodology Of LIC SIIP – Review
There is no Guaranteed Return for any market-linked product. In order to estimate the potential return, we may need to work out the Benefit illustration. With the help of this calculation, you may decide whether to invest in this plan or not. Now, let us calculate the Internal Rate of Return (IRR) for LIC SIIP.
Benefit Illustration of LIC SIIP -IRR(Internal Rate Of Return (i.e.) Interest Rate) Analysis
A 30-year-old male buys LIC SIIP for a Sum Assured of ₹ 12 Lakhs. The Annual Premium is ₹1,20,000 and the Policy Term and Premium Paying is 15 years. If he pays a premium for 15 years, then at the end of 15 years he would be receiving the Fund Value.
|Policy Term||15 years|
|Premium Paying Term||15 years|
|Premium paying mode||Annual|
|Basic Sum Assured (Rs)||12,00,000|
|Type of Fund||Bond|
In this benefit illustration, it is assumed that the Projected Investment Rate of Return that LICI 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 it does not represent the upper or lower limits of what you could receive because the value of your Policy is determined by a variety of factors, including 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|
From the above illustration, the IRR for 4% p.a. is resulting in 1.80% and the IRR for 8% p.a. is resulting in 5.53%.
The Fund Value at the assumed rate of return of 4% is ₹20.82 Lakhs and the IRR is 1.80%. Even if you have this money in your Savings Account, you will earn better returns.
The Fund Value at the assumed rate of return of 8% is ₹28.43 Lakhs and the IRR is 5.53%. This rate is not sufficient to meet your goals. As this rate is less than the inflation rate, LIC SIIP can’t be considered an investment choice.
13. LIC SIIP VS Other Investment Options
LIC SIIP is the Market linked product but the return is not up to the mark. So, in order to yield better returns, let us invest the same premium amount of ₹ 1,20,000 in other instruments. LIC SIIP provides insurance coverage and the opportunity to invest in market-linked products.
The same applies to our comparison. The premium is utilised for paying pure-Term insurance and the balance for investment.
i) LIC SIIP Vs. TermPure Term Insurance + PPF / ELSS
The TermPure Term Policy would cost ₹ 5000 for a Sum Assured of ₹ 12 Lakhs. The balance amount could be invested as per your choice. Here, to demonstrate the return for equity and debt, we have chosen PPF (debt) and ELSS (Equity).
|TermPure Term Insurance|
|Policy Term||15 years|
|Premium Paying Term||15 years|
|Premium paying mode||Annual|
|Basic Sum Assured (Rs)||12,00,000|
|Balance amount left for investment||1,15,000|
PPF account matures after 15 years. ELSS Fund Value at the end of 15 years is subject to Capital Gains Tax. The Tax Calculation is given below.
|Term Insurance + PPF||Term insurance + ELSS|
|Age||Year||Term Insurance premium + PPF||Death Benefit||Term Insurance premium + ELSS||Death Benefit|
In the above illustration, the IRR(Internal Rate of Return i.e. Interest Rate) of Term Insurance + PPF is calculated at 6.61% and the IRR of Term Insurance + PPF is calculated at 10.80%.
The final Maturity Value of the PPF Account is ₹ 31.18 Lakhs and the IRR for TermPure Term + PPF combo is 6.61%.
The Pre-Tax Value of the ELSS fund is ₹ 48.01 Lakhs and the Post-Tax Value is ₹ 45.03 Lakhs. The IRR for the TermPure Term + ELSS combo is 10.80% which is a Post-Tax Return.
ELSS Tax Calculation
|Maturity Value after 15 years||48,01,627|
|Long Term capital gains||30,76,627|
|Tax paid on LTCG||2,97,663|
|Maturity Value after tax||45,03,965|
The investment return is higher than the inflation rate. Accumulation of funds through these investments will aid in achieving your goals. This is missing in LIC SIIP.
ii) LIC SIIP vs. LIC Jeevan Lakshya
Please read the complete review of The ‘LIC Jeevan Lakshya’. An Individual Life Assurance Plan from LIC is a Non-Linked, Participating Plan. It combines corpus savings with life insurance protection.
iii) LIC SIIP vs. LIC Jeevan Azad
Please read the complete review of the ‘LIC Jeevan Azad’. A Non-Linked, Non-Participating, individual savings plan for life insurance that combines savings and life insurance.
14. LIC SIIP vs. Other Investment Options – Review Conclusion
After comparing and analyzing ‘LIC SIIP’ with other investment plans, it is clear that Term Insurance + PPF or ELSS is a better option compared to LIC SIIP in the long run.
15. Final Verdict on LIC SIIP – Good Or Bad?
LIC SIIP combines the features of insurance and investment. When you pay a premium for the LIC SIIP, a part of it is allocated towards the insurance component to cover the life insurance risk. The remaining portion of the premium is invested in the chosen funds after deducting charges related to administration and fund management.
In case of the Policyholder’s demise during the Policy Term, the insurance component provides a Death Benefit to the nominee/beneficiary. Or else at maturity, the Policyholder receives the Fund Value based on the performance of the chosen funds.
The return on investment is not on par with other market-related instruments. The risk and the return are not proportionate. The yield should be greater than the economic inflation rate. Otherwise, the investment will not be beneficial to you. The Sum Assured is also too low in LIC SIIP.
But, you may wonder why insurance agents speak highly of this plan to you. It is for the ‘High agent commission’ that they get for selling this plan to you.
For life cover, buying a Term plan with adequate life cover would be the right choice. For your life goals, choose investments according to your risk appetite. If you need any assistance in selecting your investment, instead of searching for advice on social media platforms like Quora, Facebook, Twitter, etc. please Consult a Certified Financial Planner.