The Bima Diamond Plan is the new offering from the LIC. The LIC agents would approach you with this plan. Hence, It is better to review the LIC Bima diamond plan before taking any decision. You have the right to know the positive and negative aspects of any insurance scheme. However, the Agent would rarely tell you the negative points. That is why it is important to assess the insurance scheme independently.
The LIC Bima Diamond plan is a traditional moneyback plan. It is a type of endowment insurance , a combination of insurance and investment. The investment component gives you the sum assured at the end of policy as well as in regular interval.
Unique Features of LIC Bima Diamond
The LIC Bima Diamond Plan has these unique features.
- It is a fixed tenure insurance policy. There are three tenures, 16 years, 20 years and 24 years.
- The premium paying term is less than the tenure of the policy e. g. for a 16-year policy you have to pay only for 12 years.
- The premium rate of LIC Bima Diamond is one of the highest.
- It gives life cover even after the maturity of the policy. It gives extra protection up to half of the policy tenure. For a 16-year policy, you would get life cover till 24 years. However, during the period of this extended protection, the sum assured would be the half of the original amount.
- It gives life cover even after you stop paying the premium. This relaxation is up to two years.
- The LIC Bima Diamond Plan does not give you the annual reversionary bonus. You would get loyalty addition after a certain tenure.
- This plan gives you the loan facility.
- You can take accident & disability rider and New Term assurance Rider.
- The maximum sum assured is Rs 5 lacs.
How Should We Assess a Traditional Insurance Policy
Before Buying an insurance policy we must know the positive and negative points both. It is necessary to take a balanced decision.
Positives of Bima Diamond Plan
- It gives life cover even after the non-payment of premium. This feature does not leave you vulnerable at the time of financial distress.
- The death cover continues beyond the policy maturity. This feature also gives you greater protection. This plan can keep you insured till the age of 76 years.
- You can add term assurance and accident rider to enhance your death cover.
- It is useful for those who has short period of earning
Negatives of Bima Diamond Plan
- The premium rate is too high. For a sum assured of Rs 5 lacs, you have to give up to Rs 46 thousand per year.
- The maximum sum assured is Rs 5 lacs. This amount is very low for a normal middle-class family. A person who can afford to give Rs 46 thousand as a premium, requires a death cover of at least 20 lacs.
- The amount of sum assured gets halved in the extended protection period. This amount would be grossly insufficient for a family after 20 years. It would last only for few months.
- The maturity benefit would be very low as it does not pay the whole basic sum assured. Rather the periodic moneyback payment is deducted from the basic sum assured. Thus if the sum assured for 20-year policy is Rs 5 lacs, the maturity sum assured would be only Rs 2 lacs.
- The return from LIC Bima Diamond is less than the market rate. LIC is still giving 5-6% return. One would be in a better position by opting VPF and PPF for saving purpose.
Return of LIC Bima Diamond Plan
Any Endowment insurance plan of LIC is primarily an investment product. It is sold by showing the saving aspect and tax benefits. So it is natural to compare these with other investment products.
To get the rate of return of LIC Bima Diamond plan we have to go through the following steps.
- Get the annual premium of death cover
- Calculate the Present value of total premium of death cover
- Deduct the death cover premium from first Premium
- Calculate in Internal Rate of Return of Investment Component
- Factor in the Loyalty Addition and Again Calculate the IRR
Get the annual premium of death cover
To find out the return of LIC Bima diamond plan we have to segregate the insurance and investment component. But, LIC never tells the amount which is used to give you the death cover. Thus, we have to do the reverse engineering. We have to find out the cost of death cover from another product of LIC which only gives death cover. Such insurance plans are called as the Term Insurance Plan.
Let us evaluate the LIC Bima Diamond by taking the example of the 30 years old Sushil who want to take LIC Bima Diamond for a sum assured of Rs 5 lacs and Policy term of 20 years. The premium of Rs 5 lacs for a 30 year old is Rs 37,850/year.
The Sushil will get these benefits From LIC Bima Diamond
- Term assurance of Rs 2.5 lacs payable on death for 30 years
- Term assurance of Rs 2.5 lacs payable on death for 20 years
- Rs 75,000 each at the end of 4, 8, 12 and 16 years
- 2 lacs on maturity after 20 years.
- Loyalty Additions on maturity.
The LIC Bima diamond plan gives maximum sum assured of Rs 5 lacs. But there is no pure term insurance plan of less than Rs 6 lacs sum assured. Therefore I have considered the Amulya Jeevan of LIC.
So to know the cost of the term assurance, I have used the LIC premium calculator to know the annual premium. I got the premium for 25 lacs. I divided it by 10 to get the premium of 2.5 lacs sum assured.
- Premium for term assurance of Rs 2.5 lacs for 20 years – Rs 574/year
- Premium for term assurance of Rs 2.5 lacs for 30 years – Rs 582/year
Now, you can see that the insurance cover given by the LIC Bima Diamond Plan can be availed on Rs 1156 per year till 20 years and after that, you have to pay only Rs 582/year.
Present Value of Death Cover Premiums
The figures quoted above are directly not comparable with LIC Bima Diamond’s death cover. As in the LIC Bima Diamond Plan, the Sushil has to pay only for 12 years. Whereas, the above-mentioned premium is payable for 20 and 30 years. Thus to make it comparable let us get the Present value of all premiums.
- Present value of Term plan for 20 years for sum assured Rs 2.5 lacs – Rs6,507
- Present value of Term plan for 20 years for sum assured Rs 2.5 lacs – Rs7,727
- So, the total expense on death cover – Rs 14,234 (6507+7727).
Deduct Death Cover cost from the First Premium
To simplify things, we must deduct the insurance premium of death cover from the first premium. Thus the first premium would be Rs 23,616 (37850-14,234) . The subsequent premium would remain Rs 37,850.
After deducting the death cover premium, now we know the premiums which are used to give us return. Now we can calculate the return of the investment component of the LIC Bima Diamond Plan.
Calculate the rate of Return of the Investment Component
To get the rate of return we have to use the Formula of IRR (Internal rate of return). The IRR calculation tells us the rate of the series of payments.
So after using the formula of IRR we get the rate of return as 1.60%.
Surprised! The LIC Bima diamond plan is giving only 1.6% return? Yes, It is the rate of guaranteed return. However, LIC has said to give the loyalty addition at the end of the policy. The loyalty addition is given if you pay the premium for at least 10 years.
Factor in the Loyalty Additions
We don’t know what would be loyalty addition of the LIC Bima Diamond plan. It is declared when your policy matures. Thus, again we have to take the assumption. The LIC gives Rs 300 loyalty addition to its Jeevan Saral Policy. This Rs 300 is given on every one thousand of sum assured. We can hope that LIC Bima Diamond plan would also get similar loyalty addition. As a result, the Sushil would get loyalty addition of Rs 1,50,000 at the end of policy. Let us add this value as well while calculating the return.
After adding the loyalty addition of Rs 1.5 lacs, the internal rate return (IRR) rises up to 4.35%. This is the anticipated return for the Sushil. It can slightly vary as loyalty addition differs according to the sum assured
Now we know that LIC Bima Diamond Plan gives 1.6% guaranteed rate of return. While the rate of return after factoring in the Loyalty addition translates into the 4.32%.
Since the Insurance plan also gives the benefit of tax deduction under section 80C, we can also factor this aspect as well.
Following the above steps, I have derived the rate of return for the different income tax slabs. This table would help you to take a realistic decision. However, you must note that tax benefit is available up to Rs 1.5 lacs. In the later years EPF, tuition fees, and home loan principal can occupy this amount. Thus, this benefit may not continue in future.
|LIC Bima Diamond Rate of Return
(Sum assured – 5 lacs, Age -30 years, Policy Tenure- 20 years)
|Income Tax Slabs|
|Loyalty Addition Rate||No Tax
|LA @ 100/1000 SA||2.65||4.12||5.91||8.19|
|LA @ 200/1000 SA||3.56||5||6.75||9|
|LA @ 300/1000 SA||4.32||5.77||7.5||9.71|
The LIC Bima Diamond Plan gives you low return. All the endowment plans of LIC have always given low return. In fact, Problem starts when you mix insurance with investment. Such a combo product is not the need of the most of the people but LIC agents push these endowment plans because the premium is high and agents get a higher commission.
Other LIC Plans
LIC Jeevan Labh Policy (Table 836): Features, Benefit and Terms