New Money Back Policies of LIC – Review & Return Calculation

It is no doubt that Life Insurance Corporation of India (LIC) is one of the most trusted and well-known brands in India. One reason is the kind of services they provide, while another is the variety of premium plans that they offer.

Last year, the LIC money back policy family got two new additions. One was the LIC Money Back New Plan – 20 Years, while the other was the LIC Money Back New Plan- 25 Years. Let us take a look at what these two LIC money back policies bring to the table, their usefulness and how much return you can get on these policies.

What Is A Money Back Policy?

An LIC money back policy is a kind of life insurance that is popular among the masses. As part of this, the insured is given life coverage in the course of the policy’s term, while the maturity benefits are paid via survival benefits every 5 years. As the names of the two policies suggest, one of the abovementioned new policies has a tenure of 20 years, while the other lasts for 25 years. The former has a tenure for premium pay of 15 years, with the same being at 20 years for the second.

Features Of These Two Plans Work

  1. Death Benefit: On the death of the policyholder in the course of the policy term, the nominee will receive 10 times the annual premium, or 125 percent of the sum assured basic. The death benefit should not be lesser than 105 percent of the overall premium paid until the date of death.
    Death benefit = 125 percent of sum assured or 10 times premium (whichever is higher) + yearly bonuses + final additional bonus
  2. Survival Benefits: In case the person on whom the policy is made survives the policy term, the nominee will receive 20 percent of the basic sum assured as survival assistance. This will be paid at the end of the 5th, 10th and 15th years for the 20-year plan (there will be an additional 20th year for the 25-year policy)
  3. Maturity Benefit: In the event of the policyholder surviving until the maturity date, then 40 percent of the remaining basic sum assured, along with yearly bonuses and final additional bonuses is payable.
    Maturity benefit = 40 percent of basic sum assured + yearly bonuses + final additional bonus

What Are Its Benefits?

  1. A rider (LIC’s Accidental Death and Disability Death Rider) can be chosen post payment of additional LIC premium, as long as the LIC money back policy is running on the day of the accident. In the instance of death by accident, the Accident Benefit Assured Sum and death benefit are payable. In the instance of permanent disability by accident, an amount equivalent to the Sum Assured Accident Benefit is payable over the next 10 Also, future premiums for Accident Benefit Sum Assured will be discarded.
  2. The yearly bonus (simple reversionary bonus), is deemed to be per thousand of the sum assured at the end of each year, after which they are clubbed with the guaranteed benefits. Hence, this bonus is built up over the premium period and paid at the end of the term of the LIC money back policy or on death, accompanied by the final additional bonuses. It has to be remembered that the simple reversionary bonus value is declared by the LIC (normally in between Rs 30 and Rs 40)
  3. The final additional bonus is paid if the LIC money back policy goes on for a minimum tenure. It is declared by the company (usually between 4 and 8 percent) when a claim is made, either due to death or completing of the policy term, as long as the minimum term has been served.

Digging Slightly Deeper Into Calculations

Let us look at an example to see how an LIC money back policy works. Just to avoid confusion, one has to remember that both these plans operate on a similar premise, apart from the tenures. Suppose you choose the 20-year LIC money back policy, with the sum assured is Rs 1,00,000. The premium to be paid is 7,800, with your age being 35. Here’s how it works:

  1. The first five years, you pay Rs 7,800 as premium.
  2. In the sixth year, as part of your first money back installment for the premium paid, which is 20 percent of the sum assured, you will receive Rs 20,000.
  3. Repeat step 1 for next four years.
  4. In the fifth year (11th overall), you will again get Rs 20,000 as second money back installment for the premium
  5. Repeat step 1 for next four years, the last of which will end the 15-year premium pay cycle.
  6. A third money back installment will be paid in the 16th year, which will be Rs 20,000.
  7. The next four years, no premium will need to be paid (the last of which will signal the end of the policy tenure, e., the 20th year).
  8. In the 21st year, you will receive the final money back payment, which will include 40 percent of the sum assured, 20 yearly bonuses and final additional bonuses)
  9. This means Rs 40,000 (40% of 1,00,000) + 80,000 (1000 x 40 x 20 years, assuming Rs 40 is the simple reversionary bonus decided by LIC) + 7,000 (70 x 100, assuming 7% is the final additional bonus decided by LIC) = Rs 1,27,000 will be payable to the policyholder.