Saturday, April 11, 2009


Jeevan Aastha doubles your money in 10 years

Jeevan Aastha although provide gtd. returns but plz. note the NET Yield is variable for different age person due to difference in prem. paid for the same amount of cover.

Some info for this policy is given below.
Minimum Sum assured = 150000 & can be purchsed in multiples of 30000
Max. Sum assured = No limit
Prem. type = single prem. only
Type of policy = Traditional endowment policy with gtd. return
Minimum entry age = 13 years (nearest birth day)
Max. entry age = 60 years (nearest birth day)
Policy term = 5 years or 10 years
in First policy year the SA = 6 times of Single prem. paid (appx.)
From 2nd year onwards SA = 2 times of single prem. paid (appx.)
Maturity SA = 1/6th of original SA
GTD. addition per year = 100 Rs. for per 000 maturity SA for 10Y plan & 90 Rs. for 5 year plan
Loan & surrender value = after completion of 1st policy year

Sample benefit illustration for a 35year normal healthy male stamdard life.
Age of life assured = 35 years
SA = 300000
Maturity SA = 1/6 of Initial SA = 50000
Single prem. = 48975
Term of policy = 10 years
In case of death during 1st policy year claim amount = Initial SA + GTD addition = 300000 + 5000 (@ 100 Rs. per 000 maturity SA for 50,000 maturity SA)
In case of death during 2nd to 10th year claim amount = 100000 (reduced SA) + GTD. addition of 5000 Rs. per year
Maturity amount after 10 years = 50000 (maturity SA) + 50000 (gtd. addition) + 10000 (lyality addition if any, not gtd.) = 110000 Rs.

From investment point of view (it `ll be the main sales pitch to be adopted by LIC agents al over india), the CAGR for above person = 8.43% with Loyality addition & 7.5% with out Loyality addition of 10000 Rs. which is non guaranteed.

My Take on jeevan Aastha plan -

It`s a carefully designed Fixed Maturity Plan (FMP). Yes u read it right, it`s indded a FMP as the term as well as returns r known to u before taking the policy & are almost gtd. in nature (just leaving loyality addition as a non gtd. one).
Being an ins. plan offeed by the largest Ins. co. of india, it`s also Tax efficient too. In the first year the SA is almost 6 times of single prem. hence 20% prem. to SA rule is taken care off at the time of investment. being investment oriented policy, from 2nd year the SA is reduced immediately to have lesser expenses for mortality charges.

The biggest catch lies in the GTD. bonus calculation.

As the maturity amount is fixed for the policy term, the Net yield (CAGR) `ll be higher for persons in the age bracket of 13-35 years & `ll be very low for the persons in 45-60 age bracket. Anywhere from 6% to 7%. This is due to higher mortality charges for this age bracket.

My Judgement - This Policy is not suitable for any age class. for Y`ger people (20-35 age), the 10 year term can provide better returns from market linked instruments like Eq. & Debt. MFs. For older age people the return is not that much attractive. In fact for the persons who r in their 50s, the 10.5% bank FDs & PPF & Bhavishya Nirmaan Bonds (BNB) of Nabard r better option. as By that time the Ins. needs r over & even if one purchase it for ther partial ins. benefit, the real ins. is very poor.

Another reason why you should not invest in Jeevan Aastha
Let us say you have invested Rs 10,000.
In ten years if your amount has doubled to Rs 20,000 - then the return is 72 / 10 = 7.2%. If your returns are 8% - then the time taken to double your money is 72/8 = 9 years.
The formula is -

72 / rate of return = no of years to double your money or
72/ no of years to double your money = rate of return.

The new JEEVAN AASTHA policy - your money approximately doubles in 10 years.
So the rate of return is 72 /10 = 7.2% (approx) and not 10% as projected by your insurance agent.

Regulars to this Blog know that I hate Combining Insurance with Investment. My advise has always been, and will continue be, For Insurance Take Term Plan, which is the cheapest form of Insurance and then invest the remaining in Diversified Equity Funds. Finally, my advise on Jeevan Aastha is,

Best of luck,
Srikanth Shankar Matrubai

Also visit for an indepth Equity Analysis

1 comment:

  1. One Anonymous Reader wrote :The writer may look unbiased but with more details on various issues, he has not touched upon creates doubts on his sincerity. For example (1.) LIC has used the word "10% GUARANTEED ADDITIONS" in lieu of 'Returns' as used by this writer. difference should have been noticed by this learned writer before commenting on this subject. (2.) to which present scheme he would like to compare with, other than P.P.F. ? since only P.P.F. to some extent comes very close to it on "TAX-IMPLICATIONS" basis. But again by this time every one has learned about its non-fixation of Interest rates by Government{from earlier 12% to present 8% and what next??) At least "Aastha" guarantees for all ten/five years the same "Guaranteed Additions". Again there is no limit like only Rs. 70,000/- per year[for own and for on behalf of Minor: aggregate and not separate]. And for what reason we should compare it with P.P.F. at all? since P.P.F. is not an insurance after all. [The only limit may be thru Health of Insured and nothing else] (3.) He has not understood by another new term used ny LIC. And that is "Loyalty Addition" on maturity which can be further increasing the yield in the hands of Insured on survival. (4.) He has miserably failed to show the TAX-IMPLICATIONS on such scheme, which can be a great help for Hi-fliers. (5.) Last and not least when there is turmoil in financial field all over global market who would not like some Guarantee by some Trustworthy Institution like LIC? So better be an expert while commenting on such delicate issues.



    Dear Sir,

    1. Although the LIC was quoting GTD. Additions but for a policy holder, ultimately these additions 'll be the 'Return' generated by the policy. So the writer is justified by using the word Return. Also this plan was primarily an investment product hence mentioning the word 'Return' is justified. 2. Limitations of PPF for 70K Rs. per annum & interest rate fluctuations are ok but at the same time, as of now the 8% interest rate seems the bottom most rate. Barring 1st year, the insurance part is not that much attractive. 3. Plz. do note the term Loyalty addition is not new for LIC. It's already there for a long time. the interesting thing regarding this Loyalty Addition is for policies of term 5 years, LIC did not announce any LA. Just check it with the policy holders of Beema Nivesh. 4. Regarding Tax implications, yes this policy is drafted cleverly to provide kick in return by reducing the Sum assured (insurance) from 2nd policy year onwards. But again the returns are also dependent of age of the policy holder due to difference in mort. charges for different age. higher the age, lower the returns. 5. When some one is giving a guarantee, the counter part is that ur returns from ur investment are also capped. If a person is happy with this cap, S/he can go for guarantee. At the same time, the returns for 5 & 10 years term can be higher from other products where there is no guarantee at all. Debt funds for 5 years term & Eq. funds for 10 year term. Regards, Srikanth Shankar Matrubai