Insurance: Term Plan
For the past one month, I was revising my investments especially life insurance and then for tax planning. I already have an life insurance for 8 lakhs sum assured for 25 years premium term on Life Insurance Corporation of India(LIC) Jeevan Anandh policy. When compared to my annual income this insured amount looks less. So, I searched for various options including
Unit Linked Insurance Plans (ULIPs) from various Insurance Agencies like Market Plus of LIC, ICICI Prudential LifeTime Super, HDFC ULIP, etc.
Endownment Plans like Jeevan Anandh and others.
Term Plans.
Only for ULIPs I looked at other private fund management companies. For all other schemes, I looked only at LIC's various schemes. Due to the high expense ratio, lack of good track record, etc I ignored ULIPs.
These are my thoughts that were going on in my mind while choosing a plan.
1. I need an investment of atleast Rs 10 lakhs, in addition to the 8 lakh insurance I already have.
2. I can invest upto 40,000/ per year on additional insurance.
3. I may need more insurance when my salary increases in the next few years.
4. I may take a house loan later in my life. This may affect the annual premiums that I could pay.
5. I should have either monthly premium or annual premium. I am not interested in quarterly or semi-annually or single time payment.
6. Most important, my age is just 22 years, I am single. So, I can take a good amount of risk.
7. Total long term investments I can make for this years is around 1 lakh only. Later in my life, I may be able to invest more.
From the above requirements, points 4 and 6 favoured me to go for ULIPs since they provide high returns and they also carry high risk. Few ULIPs allows Plan Surrender with Cover Continuation options, that I can quit paying the premiums but risk cover will contiue. But as I have said in the beginning the ULIPs didn't sound interesting for me.
I am left with 2 other types of insurance - Term Plans and Endownment Plans. I already have an endownment plan Jeevan Anand. I thought of taking another plan with a sum assured of 10 lakhs that will give total life cover of 18 lakhs. The term plans I considered are Amulya Jeevan and Anmol Jeevan-I.
Jeeven Anand:
The insurance agent explained me that Jeevan Anand has a consistent track record so that we can expect around 10% returns. Although the Insurance Regulatory & Development Authority (IRDA) rule is that the insurance agency should have a benefit illustration with 6% and 10% returns, the agent was stressing more on 10% only. For my calculations, I calculated with the returns as 10%.
The following calculations will apply for most endowment plans.
For a premium payment period of 25 years, for a sum assured of 10lakhs, the annual premium is Rs 39072/
That is at the end of 25 years you will get only about 22 lakhs.
Anmol Jeevan:
Being a term plan the premium I have to pay is very less. For a premium term of 25 years and for a sum assured of Rs 10,00,000/ The premium that should be payed is Rs 2524/. So I can take an insurance for Rs 30,00,000/ that needs a premium of Rs 7573/ only. An insurance for 30 lakhs eliminates or reduces the need for having additional insurance in the later stages of life. Also, being a very small amount, my other requirements like when I take a house loan, this premium may not hurt my pocket. But, if I survive for 25 years, I won't get any bonus. That is the term plan doesnt have a savings component it it. For savings I we can invest the rest of the amount in mutual funds (ELSS for tax benefits).
But the problem here is, this policy covers my life only for 25 years. The maximum term period itself is 25 years. Now, I am 22. Means, I have a life cover only till 47 years. This is too less. So, I rejected this plan as this doesnt cover my life adequetly.
Amulya Jeevan:
Amulya Jeevan is a similar term plan, with a few differences from Anmol Jeeven.
1: The minimum Rs25 lakhs.
2: The maximum term period is 35 years.
Although 35 years means till 57 years only, by this time, I would have settled almost all my responsibilities for my children. Also the mutual funds investments will provide a good savings for me that time. So I thought of understanding more about this plan, and a supplementary mutual fund investment plan and the benefits.
The premium for a sum assured of Rs 30 lakhs is Rs 8340/ for 30 years. To confirm that this scheme is better than the Jeevan Anand scheme, I will have to estimate the returns from the mutual funds. Being a very risky investment means with highly uncertain returns, I am using the worst case returns that will be obtained from the mutual funds. A well managed funds usually beats the index atleast in the developing countries like India. So, the returns from the Sensex will form the worst case returns as we can change to index funds if needed.
Indian Stock Markets (BSE Sensex) has given a profit of approximately 20% in the past 20-25 years. I am expecting the same trend to continue for next few years. In the next 10 years, it may grow atleast 20%. Next 10 years, it will grow a minimum of 15%, and then settle down at 12%.
Since this calculations is for comparision purpose only, I am assuming my total investments is exactly equal to the premium for Jeevan Anand i.e. Rs39072/- It means I have Rs30732/ to invest in mutual funds after paying the premium of Rs8340/ for Amulya Jeevan. For 25 years, I will have Rs30732/ p.a to invest in mutual funds. The remaining 10 years, I wont invest anything in mutual funds.
At the end of 25 years we have stopped investing in mutual funds. At the end of 35 years, our insurance expires. But if we are alive till that age, we have gained much more than what we would have earned/saved by investing in endowment schemes. Although the insurance expires, we have a good amount of money for our dependents.
Although the numbers look drammatic, these are not far from reallity. So I have decided to invest in Amulya Jeevan Plan.
At this time, I want to quote what I understood about Term Plans. "On unfortunate events in my early stages of my life, insurance helps. If I survice the term period, I would have already earned what my dependents need".
Before making your plans, don't ignore Term Plans, as this is one of the best way to save your dependents in your absense.
Unit Linked Insurance Plans (ULIPs) from various Insurance Agencies like Market Plus of LIC, ICICI Prudential LifeTime Super, HDFC ULIP, etc.
Endownment Plans like Jeevan Anandh and others.
Term Plans.
Only for ULIPs I looked at other private fund management companies. For all other schemes, I looked only at LIC's various schemes. Due to the high expense ratio, lack of good track record, etc I ignored ULIPs.
These are my thoughts that were going on in my mind while choosing a plan.
1. I need an investment of atleast Rs 10 lakhs, in addition to the 8 lakh insurance I already have.
2. I can invest upto 40,000/ per year on additional insurance.
3. I may need more insurance when my salary increases in the next few years.
4. I may take a house loan later in my life. This may affect the annual premiums that I could pay.
5. I should have either monthly premium or annual premium. I am not interested in quarterly or semi-annually or single time payment.
6. Most important, my age is just 22 years, I am single. So, I can take a good amount of risk.
7. Total long term investments I can make for this years is around 1 lakh only. Later in my life, I may be able to invest more.
From the above requirements, points 4 and 6 favoured me to go for ULIPs since they provide high returns and they also carry high risk. Few ULIPs allows Plan Surrender with Cover Continuation options, that I can quit paying the premiums but risk cover will contiue. But as I have said in the beginning the ULIPs didn't sound interesting for me.
I am left with 2 other types of insurance - Term Plans and Endownment Plans. I already have an endownment plan Jeevan Anand. I thought of taking another plan with a sum assured of 10 lakhs that will give total life cover of 18 lakhs. The term plans I considered are Amulya Jeevan and Anmol Jeevan-I.
Jeeven Anand:
The insurance agent explained me that Jeevan Anand has a consistent track record so that we can expect around 10% returns. Although the Insurance Regulatory & Development Authority (IRDA) rule is that the insurance agency should have a benefit illustration with 6% and 10% returns, the agent was stressing more on 10% only. For my calculations, I calculated with the returns as 10%.
The following calculations will apply for most endowment plans.
For a premium payment period of 25 years, for a sum assured of 10lakhs, the annual premium is Rs 39072/
| Year | Preminum Payed | Sum Assured | Bonus | Total Amount |
| 1 | 39072 | 1000000 | 51000 | 1051000 |
| 2 | 78144 | 1000000 | 102000 | 1102000 |
| 3 | 117216 | 1000000 | 153000 | 1153000 |
| 4 | 156288 | 1000000 | 204000 | 1204000 |
| 5 | 195360 | 1000000 | 255000 | 1255000 |
| 6 | 234432 | 1000000 | 306000 | 1306000 |
| 7 | 273504 | 1000000 | 357000 | 1357000 |
| 8 | 312576 | 1000000 | 408000 | 1408000 |
| 9 | 351648 | 1000000 | 459000 | 1459000 |
| 10 | 390720 | 1000000 | 510000 | 1510000 |
| 11 | 429792 | 1000000 | 561000 | 1561000 |
| 12 | 468864 | 1000000 | 612000 | 1612000 |
| 13 | 507936 | 1000000 | 663000 | 1663000 |
| 14 | 547008 | 1000000 | 714000 | 1714000 |
| 15 | 586080 | 1000000 | 765000 | 1765000 |
| 16 | 625152 | 1000000 | 816000 | 1816000 |
| 17 | 664224 | 1000000 | 867000 | 1867000 |
| 18 | 703296 | 1000000 | 918000 | 1918000 |
| 19 | 742368 | 1000000 | 969000 | 1969000 |
| 20 | 781440 | 1000000 | 1020000 | 2020000 |
| 21 | 820512 | 1000000 | 1071000 | 2071000 |
| 22 | 859584 | 1000000 | 1122000 | 2122000 |
| 23 | 898656 | 1000000 | 1173000 | 2173000 |
| 24 | 937728 | 1000000 | 1224000 | 2224000 |
| 25 | 976800 | 1000000 | 1275000 | 2275000 |
That is at the end of 25 years you will get only about 22 lakhs.
Anmol Jeevan:
Being a term plan the premium I have to pay is very less. For a premium term of 25 years and for a sum assured of Rs 10,00,000/ The premium that should be payed is Rs 2524/. So I can take an insurance for Rs 30,00,000/ that needs a premium of Rs 7573/ only. An insurance for 30 lakhs eliminates or reduces the need for having additional insurance in the later stages of life. Also, being a very small amount, my other requirements like when I take a house loan, this premium may not hurt my pocket. But, if I survive for 25 years, I won't get any bonus. That is the term plan doesnt have a savings component it it. For savings I we can invest the rest of the amount in mutual funds (ELSS for tax benefits).
But the problem here is, this policy covers my life only for 25 years. The maximum term period itself is 25 years. Now, I am 22. Means, I have a life cover only till 47 years. This is too less. So, I rejected this plan as this doesnt cover my life adequetly.
Amulya Jeevan:
Amulya Jeevan is a similar term plan, with a few differences from Anmol Jeeven.
1: The minimum Rs25 lakhs.
2: The maximum term period is 35 years.
Although 35 years means till 57 years only, by this time, I would have settled almost all my responsibilities for my children. Also the mutual funds investments will provide a good savings for me that time. So I thought of understanding more about this plan, and a supplementary mutual fund investment plan and the benefits.
The premium for a sum assured of Rs 30 lakhs is Rs 8340/ for 30 years. To confirm that this scheme is better than the Jeevan Anand scheme, I will have to estimate the returns from the mutual funds. Being a very risky investment means with highly uncertain returns, I am using the worst case returns that will be obtained from the mutual funds. A well managed funds usually beats the index atleast in the developing countries like India. So, the returns from the Sensex will form the worst case returns as we can change to index funds if needed.
Indian Stock Markets (BSE Sensex) has given a profit of approximately 20% in the past 20-25 years. I am expecting the same trend to continue for next few years. In the next 10 years, it may grow atleast 20%. Next 10 years, it will grow a minimum of 15%, and then settle down at 12%.
Since this calculations is for comparision purpose only, I am assuming my total investments is exactly equal to the premium for Jeevan Anand i.e. Rs39072/- It means I have Rs30732/ to invest in mutual funds after paying the premium of Rs8340/ for Amulya Jeevan. For 25 years, I will have Rs30732/ p.a to invest in mutual funds. The remaining 10 years, I wont invest anything in mutual funds.
| Year | Preminum Payed | Sum Assured | Amount Invested In MF | Estimated Value in MF | Total Amount |
| 1 | 8340 | 3000000 | 30732 | 36878 | 3036878 |
| 2 | 16680 | 3000000 | 61464 | 81132 | 3081132 |
| 3 | 25020 | 3000000 | 92196 | 134237 | 3134237 |
| 4 | 33360 | 3000000 | 122928 | 197963 | 3197963 |
| 5 | 41700 | 3000000 | 153660 | 274434 | 3274434 |
| 6 | 50040 | 3000000 | 184392 | 366200 | 3366200 |
| 7 | 58380 | 3000000 | 215124 | 476318 | 3476318 |
| 8 | 66720 | 3000000 | 245856 | 608460 | 3608460 |
| 9 | 75060 | 3000000 | 276588 | 767030 | 3767030 |
| 10 | 83400 | 3000000 | 307320 | 957315 | 3957315 |
| 11 | 91740 | 3000000 | 338052 | 1136254 | 4136254 |
| 12 | 100080 | 3000000 | 368784 | 1347335 | 4347335 |
| 13 | 108420 | 3000000 | 399516 | 1596175 | 4596175 |
| 14 | 116760 | 3000000 | 430248 | 1889351 | 4889351 |
| 15 | 125100 | 3000000 | 460980 | 2234567 | 5234567 |
| 16 | 133440 | 3000000 | 491712 | 2640837 | 5640837 |
| 17 | 141780 | 3000000 | 522444 | 3118710 | 6118710 |
| 18 | 150120 | 3000000 | 553176 | 3680527 | 6680527 |
| 19 | 158460 | 3000000 | 583908 | 4340717 | 7340717 |
| 20 | 166800 | 3000000 | 614640 | 5116153 | 8116153 |
| 21 | 175140 | 3000000 | 645372 | 5764511 | 8764511 |
| 22 | 183480 | 3000000 | 676104 | 6494802 | 9494802 |
| 23 | 191820 | 3000000 | 706836 | 7317355 | 10317355 |
| 24 | 200160 | 3000000 | 737568 | 8243795 | 11243795 |
| 25 | 208500 | 3000000 | 768300 | 9287211 | 12287211 |
| 26 | 216840 | 3000000 | 768300 | 10401676 | 13401676 |
| 27 | 225180 | 3000000 | 768300 | 11649877 | 14649877 |
| 28 | 233520 | 3000000 | 768300 | 13047862 | 16047862 |
| 29 | 241860 | 3000000 | 768300 | 14613606 | 17613606 |
| 30 | 250200 | 3000000 | 768300 | 16367239 | 19367239 |
| 31 | 258540 | 3000000 | 768300 | 18331307 | 21331307 |
| 32 | 266880 | 3000000 | 768300 | 20531064 | 23531064 |
| 33 | 275220 | 3000000 | 768300 | 22994792 | 25994792 |
| 34 | 283560 | 3000000 | 768300 | 25754167 | 28754167 |
| 35 | 291900 | 3000000 | 768300 | 28844667 | 31844667 |
| 36 | 208500 | 0 | 768300 | 32306028 | 32306028 |
| 37 | 208500 | 0 | 768300 | 36182751 | 36182751 |
| 38 | 208500 | 0 | 768300 | 40524681 | 40524681 |
| 39 | 208500 | 0 | 768300 | 45387643 | 45387643 |
| 40 | 208500 | 0 | 768300 | 50834161 | 50834161 |
| 41 | 208500 | 0 | 768300 | 56934260 | 56934260 |
| 42 | 208500 | 0 | 768300 | 63766372 | 63766372 |
| 43 | 208500 | 0 | 768300 | 71418337 | 71418337 |
| 44 | 208500 | 0 | 768300 | 79988537 | 79988537 |
| 45 | 208500 | 0 | 768300 | 89587162 | 89587162 |
At the end of 25 years we have stopped investing in mutual funds. At the end of 35 years, our insurance expires. But if we are alive till that age, we have gained much more than what we would have earned/saved by investing in endowment schemes. Although the insurance expires, we have a good amount of money for our dependents.
Although the numbers look drammatic, these are not far from reallity. So I have decided to invest in Amulya Jeevan Plan.
At this time, I want to quote what I understood about Term Plans. "On unfortunate events in my early stages of my life, insurance helps. If I survice the term period, I would have already earned what my dependents need".
Before making your plans, don't ignore Term Plans, as this is one of the best way to save your dependents in your absense.
posted by Jayaprabhakar | 10:38 AM
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