LIC Jeevan Shiromani is the new insurance plan from the LIC. The LIC has designed this policy for the rich people as the minimum premium of this policy is about 7 lakhs. I have given all details of this policy in a separate post. Now, Let us review this policy. To make things simpler, I will tell you 5 good things and 5 negative points of the LIC Jeevan Shiromani.
Must Read: LIC Jeevan Shiromani Details
Review: 5 Positive Things
Last time when I reviewed the Jeevan Labh policy, I have only pointed the negative aspect. However I have told it upfront, Still many LIC agents were very angry. So, I am going to take a balanced approach to this review. I would first talk about the positive things of the LIC Jeevan Shiromani Policy
#1. Inclusion of Critical Illness Rider
This policy has inbuilt critical illness rider. You are not required to pay anything extra for this rider. This rider is available to each and every policyholder.
According to this rider, you would get the 10% of the basic sum assured on diagnosis of critical illness. You can also take the second opinion of the doctor. The LIC also gives you the option to defer your premium payment for 2 years. It would not charge any penalty or interest on the pending premium.
The LIC has specified 15 of such critical illness which includes Cancer, Heart Attack, kidney failure, stroke, paralysis etc.
The critical illness rider is a good inclusion. It would be beneficial as the medical cost has become very high. This rider may be very helpful if the need arises.
Must Read: 10 Interesting Facts About the LIC
#2. You can get money in instalments
The LIC Jeevan Shiromani have an option of settlement. In this option, you can get maturity benefit in instalments. You can get these instalments up to 5, 10 or 15 years. These instalments can be monthly, quarterly, half yearly or yearly
You can choose full maturity amount or the part amount of the payment in instalments. The amount can be an absolute value or a percentage of the maturity amount.
During the period of instalment, your deposit would also earn the interest, The interest rate would be declared by the LIC.
The policyholder can stop the instalment payment and get the whole amount in lump sum. However, if the policyholder dies, the nominee would get the payment in instalments only.
#3. Option To Defer Survival Benefit
As LIC Jeevan Shiromani is a MoneyBack Plan, You get the maturity benefit even before the policy ends. In the case of this policy, the moneyback payment starts 4 years before the policy ends. for example, in 18 years Jeevan Shiromani Policy, you get the first instalment after the 14 years of the policy.
This policy also gives you an option to defer this part payment. You can take this payment anytime. Hence, you get the liberty to withdraw money as per your requirement. It is a very useful benefit as your expense schedule may not match the payment schedule of Jeevan Shiromani. Thus, this deferment can be very handy.
You would also get the interest for the deferred period. The interest rate of the period would 1.5% less than the government bond yield of 5 years.
#4. Full Maturity Amount Tax Free
This benefit is available with Life insurance policy. But, it would be very helpful for the rich person who wants tax-free income. The survival benefit and maturity amount of the LIC Jeevan Shiromani are totally tax-free. Since Only rich people would be able to invest in this plan, they can save 30% of the tax on the maturity amount.
Thus, this scheme is similar to the tax-free infrastructure bonds. These bonds also give tax-free income.
#5. No Risk Involved
The LIC Jeevan Shiromani is a moneyback endowment plan. The LIC does not take any risk with this plan and most of the money is invested in government securities.
The endowment plans avoid the share market, hence you don’t have any chance of losing the capital. The LIC is very conservative and rarely takes the risk. That is why the returns from LIC policies are very low.
You can be assured of your investment and survival benefits as the government of India takes guarantee of the LIC.
Review: 5 Negative Things of LIC Jeevan Shiromani
Now it is the turn to tell you the negative review of the LIC Jeevan Shiromani. You should read this section carefully. It is a matter of the big amount.
#1. Return is Very Low
The LIC never tells the rate of return from their policies. Since it clubs the investment and insurance together, it becomes tougher to find out the rate of return. Further, Loyalty addition is not guaranteed. Thus, LIC have all the safeguards to keep the interest in its affordability range.
But because of this conservative attitude, you never get a good return from the LIC plans. Normally, It gives 4-6% return to moneyback policyholders.
In case, you do not take the instalments of moneyback, the LIC pays interest on it. The interest would be 1.5% less than the 5 years government bond yield. From this data, you get an idea of the interest. In fact, LIC always try to give 1.5% less interest rate that the government bonds. Whereas, post office schemes and banks often give a higher return than the government bond yield.
#2. Insurance Cover is Minuscule
If you take an online term insurance plan, You can get 1 crore death cover only by paying about ₹15 thousand per year. Whereas, for the death cover of 1 crore, you have to pay more than ₹7 lakhs in a year. It is a 50 times more money.
I do understand that both the plans are different and LIC Jeevan Shiromani gives you the maturity amount while term insurance gives nothing. But, You have to think of it as everyone requires the proper death cover.
A person who can pay the premium of more than ₹7 lakhs in a year must be a rich person with annual income of more than ₹50 lakhs. Such a person needs death cover of at least ₹5 crore. So the death cover of about 1 crore would be insufficient for him/her. Therefore, this plan is no use of with regards to the death cover.
The person has to take a term plan for proper insurance coverage. And if he/she is going to take the term plan, what is the need for another policy for death cover.
#3. Money is locked for long-term
The LIC Jeevan Shiromani gives you a tax benefit, insurance cover and maturity benefit. But these benefits are available at the cost of the long lock-in period. You have to keep your money for a long period.
The smallest period of this policy is 14 years. Since it is a moneyback plan, you would start getting money from 10th year. Still, you have wait for 10 years.
On the other hand, ELSS has lock in period of only three years. Even PPF gives you the facility of partial withdrawal from the 7th year. NSC and tax saving FD also matures in 5 years. These are also tax saving options which give good return.
#4. Surrender value is low, Loan is costly
You can surrender your LIC Jeevan Shiromani policy if you don’t want to continue with it. But you would not get the full maturity value. Even you would not get back the whole premium. Rather, the surrender value would be the reduced amount of your total contribution.
In fact, you have to bear the loss for surrendering the policy. If you surrender the policy up to 7 years, you would only get 50% of the paid premium. That too, after excluding the taxes. You would never get back full paid premium, in case you surrender the policy.
This policy also gives a loan. The loan amount would be 80-90% of the surrender value. In fact, the surrender value of your policy act as the mortgage. Despite this mortgage and zero risks, the LIC is asking high-interest rate of 9.5%. Whereas, a home loan is cheaper than this.
#5. 80C Tax Benefit Irrelevant
Practically, LIC Jeevan Shiromani is an investment plan with the tax benefit. The policyholder would rarely use it for 80C deduction. As 80c limit of 1.5 lakh is very less for the rich people, their children tuition fees alone can fill the 1.5 lakhs bucket. Thus, the high premium of this plan would not give the benefit of the tax deduction.
However, the maturity amount would be tax-free and it is a real benefit. As investment in bank fixed deposit would have been taxable.
In this review, I have tried to put the positive and negative aspects of the LIC Jeevan Shiromani. I hope, now you can take an informed decision. Personally, I am against the insurance policies for achieving any financial goal. In my view, an insurance policy should be only for the risk cover. There are enough investment plans in the market. You can choose any of them according to your needs. What is the need of taking a complicated mixture when a pure and simple product is available?