Life Insurance| LIC’s Jeevan Surabhi | Features | Benefits | Illustration | Advantages

LIC‘s Jeevan Surabhi is a popular money-back plan where a specified percentage of sum assured is paid back to the policy holder periodically.

Some Features of this insurance cum investment plan are as follows:

The periodic payouts do not reduce the quantum of life cover and the same continues throughout the term of the policy.
In case of death of the policyholder during the term of the policy, Jeevan Surabhi provides for an additional benefit, over and above the policy amount, (from Rs.500-2,000 per thousand sum assured), depending upon the duration of the policy and the period of death of the policyholder.
The premium paying term is lower than the policy terms. Thus, if the policy term is 15 years, investor is required to pay a premium only for 12 year. Similarly, for a policy term of 20 and 25 years, the corresponding premium paying term is 15 and 18 years, respectively.
The scheme also provides for an annual bonus payout. Though these bonus payouts are not guaranteed and are paid at the discretion of the LIC. So far, LIC has been prompt and consistent in declaring annual bonuses for Jeevan Surabhi. For the past three years, the bonus rate for Jeevan Surabhi has been ranging from Rs.34-50 per thousand sum assured, depending on the duration of the policy.

Maturity benefits:

A 20-year plan under Jeevan Surabhi for a sum assured (life cover) of Rs.10lac, needs a premium of Rs.90,296 per year (for a healthy male individual aged 30 years). (Assuming the premium paying term of 15 years for a 20 year policy), the total amount paid out as premium turns out to over Rs.13lac. Thus, the cost to purchase a 20-year Jeevan Surabhi is Rs.13.5lac for the policyholder, higher than the life cover of Rs.10lac provided by this scheme.

Net gains including the bonus receipts:

As a money-back policy ensures periodic payment of sum assured, the policyholder, will receive 25% of the sum assured of Rs.10lac in the 4^th, 8^th, 12^th and 15^th year of the policy term. Thus, entire sum assured of Rs.10lac will be returned to the investor by the end of the 15^th year even as the cover on life will continue till the 20^th year of the policy. No further premiums need to be paid by the policyholder.
At the end of the 20^th year, all the accumulated bonuses will be paid to the investor in lump sum. Assuming a bonus rate of Rs.41 per thousand sum assured (as is being declared by the LIC since the past three years for Jeevan Surabhi’s 20-year term plan), the total accumulated bonuses till the end of the 20^th year comes to about Rs.8.2lac for a sum assured of Rs.10lac. Thus, the investor would get Rs.18.2lac by the end of the 20^th year against the cost of Rs.13.5lac. The net gain to the policyholder after 20 years thus comes to Rs.4.7lac.

Returns from alternate investments: Illustration

Instead of paying an annual premium of over Rs.90,000 for Jeevan Surabhi, if you choose to buy a pure term plan, say Anmol Jeevan from LIC, and invest the balance in a mix of risky and risk-free investments, (equity and/or PPF), the same would have ensured much higher returns on life cover.

A sum assured of Rs.10lac under Anmol Jeevan requires an annual premium of Rs.3,227 (for a healthy male individual aged 30 years). Now let us assume that the policyholder invests the balance amount of Rs.70,000 in PPF, earning a risk-free and tax-free return of 8% p.a. compounded annually and Rs.17,000 in equities that earn a CAGR of 15% p.a. (on a conservative note) for a period of 20 years.

Then by the end of 20 years, as far as insurance is concerned, he would have shelled out about Rs.65,000 as cost to cover his life. There will be no returns from the term insurance plan if the policyholder survives the entire term and thus the entire amount of Rs.65,000 should be treated as an expense to cover the life.

However, the balance amount would earn him nearly Rs.54.6lac by the end of the 20^th year. For net insurance cost of Rs.65000, the earnings would be around Rs.54lac, much higher than the Rs.4.7lac gained under Jeevan Surabhi.

Maximizing returns from Jeevan Surabhi

However, as Jeevan Surabhi is a money-back plan, it provides considerable scope for the investor to maximize returns by investing wisely, the periodic payouts made by the plan. In the above illustration, the investor is in receipt of 25% of the sum assured i.e. Rs.2.5lac at the end of the 4^th, 8^th, 12^th and 15^th policy year.

If each of these installments is invested to earn a minimum risk-free return at about 8%, then Rs.10lac can grow to about Rs.25lac by the end of the 20^th year. These earnings will be over and above the bonus payable by LIC at the end of the 20^th year.

Advantages: Death Benefit

In the above illustration, where the term of the policy is 20 years and premiums are payable for 15 years, say the death of the policyholder occurs in the 17^th year of the policy. By this time, the entire sum assured of Rs.10lac would have been repaid to the policy holder in four trenches of 25% each.

However, as the death occurs during the term of the policy, beneficiaries of the deceased will be eligible for the entire sum assured of Rs.10lac, irrespective of any amounts paid earlier plus all the accumulated bonuses declared till the time of death of the policyholder.

Moreover, there will be an additional death benefit of Rs.1500 per thousand sum assured, which in this case would be Rs.15lac. Thus, the beneficiaries stand to gain Rs.25lac plus the bonuses under a policy that ensured Rs.10lac life cover.

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Tags: LIC