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LIC SIIP Plan (852): Evaluation: Not an SIP: Do you have to make investments?


LIC SIIP (LIC Systematic Funding Insurance coverage Plan) is a Common premium ULIP. As with ULIPs, the returns are market-linked. However the plan has a lot costly price construction in comparison with new ULIPs we see today. Higher to remain away.

LIC SIIP plan is a daily premium ULIP from LIC. As I see, the nomenclature has been chosen to experience the recognition of SIPs (systematic funding plans) in mutual funds. Although there’s nothing improper with the identify, the selection appears intentionally deceptive.  We should see this within the context of ranges of economic consciousness within the nation. Given how a lot traders belief LIC, the plan would have offered properly beneath any identify. LIC may have achieved with higher identify choice.

Let’s go previous the
nomenclature and discover concerning the LIC SIIP intimately.

LIC SIIP (Plan 852): Salient
Options and Evaluation

  1. It’s a unit-linked insurance coverage plan (ULIP). This implies there is no such thing as a assure of returns.
  2. It is a Kind I ULIP. On the time of demise, the nominee will get Larger of (Sum Assured, Fund Worth). Below a Kind II ULIP, the nominee will get Sum Assured + Fund Worth. All the pieces else being the identical, Kind I ULIP gives higher returns whereas the Kind II ULIP gives higher life cowl.
  3. Coverage Time period: 10 to 25 years
  4. Common Premium plan (Premium cost time period identical as coverage time period)
  5. Premium Cost Frequency: Month-to-month, Quarterly, Half-yearly, Yearly
  6. Sum Assured: Is dependent upon your entry age
    1. Entry age as much as 55 years: 10 instances the annualized premium
    2. Entry age 55 years and above: 7 instances the annualized premium
  7. Eligibility: I reproduce a picture from the product brochure
  8. Costs within the plan: Premium allocation prices, the Mortality prices, fund administration prices, switching prices, partial withdrawal cost, and many others. Will talk about these later within the put up.
  9. You CAN NOT get a mortgage beneath LIC SIIP plan. Loans should not permitted for ULIPs.
  10. You might have 4 fund selections (Bond Fund, Secured Fund, Balanced Fund, Progress Fund)
LIC SIIP systematic investment insurance plan plan 852
LIC SIIP Plan (852): Eligibility
LIC SIIP: Minimal and Most Premium
lic nivesh plus ulip fund choices
LIC SIIP Plan; Selections of Fund

LIC SIIP Plan (Plan 852): Numerous
Costs and their affect

For a deeper understanding about varied kinds of prices in ULIPs, how they’re adjusted and their affect on returns, check with this put up.

The ULIPs have the
identical nomenclature for the costs. I’ll level out areas the place LIC SIIP is
higher or worse than different widespread ULIPs.

Premium allocation cost: This cost is deducted from the premium earlier than your cash will get invested. It’s expressed as a share of premium. GST can be relevant on these prices.

In LIC SIIP plan,
Premium allocation cost is

LIC SIIP plan table 852

Subsequently, in case you
make investments Rs 1 lacs every year within the plan, Rs 9,400 (incl. 18% GST) will probably be
charged in case of offline buy and Rs 3,540 (incl. 18% GST) in case of
on-line buy. The remaining cash will get invested however will probably be topic to different
prices.

From the second
until the 5th 12 months, Rs 6,490 will probably be charged in case of offline and
Rs 2,360 will probably be charged in case of on-line plan.

From the 6th
12 months onwards, Rs 3,540 and Rs 1,180 will probably be charged for offline and on-line
plans respectively.

At a time when non-public insurers are shifting in direction of zero premium allocation cost at the very least for on-line gross sales, these prices are exorbitant.

Mortality prices: These prices go in direction of offering you the life cowl. The mortality prices rely in your age and are recovered each month by the cancellation of fund items each month.  I reproduce the mortality cost desk from pattern coverage doc on LIC web site.

LIC Nivesh plus 849 mortality table impact of charges

Mortality prices enhance with age. In case you are previous, mortality prices will have an effect on your returns extra. On the identical time, since this can be a Kind I ULIP (sum-at-risk = Sum Assured – Fund Worth), the affect of mortality prices will probably be decrease. Sum-at-risk is the quantity that the insurance coverage firm should pay within the occasion of policyholder demise. In Kind-I ULIPs, because the fund worth will increase, the Sum-at-risk goes down. Subsequently, the affect of mortality prices additionally goes down.

I discovered the
prices barely increased than a number of the ULIPs from non-public firms that I
checked out.  

LIC SIIP Plan: Return of
Mortality prices

There’s a provision
that the mortality prices will probably be returned to the investor on the time of
maturity. Solely the bottom prices will probably be returned to the investor. Any taxes or extra
as a consequence of your well being situation received’t be reimbursed. This will probably be paid as well as
to the fund worth.

In isolation, that is an investor-friendly gesture. Nonetheless, this received’t make a lot distinction to your returns.

Why?

Since you get
solely absolutely the mortality prices. No return is given on these prices.
As talked about earlier, taxes and extra received’t
be returned both.

Furthermore, since
this can be a Kind-I ULIP, the quantum of mortality cost will go down yearly and
finally go to zero as soon as the Fund Worth exceeds the Sum Assured.

Irrespective of how we
spin it, every thing comes from the costs.

Mortality prices
received’t be returned for surrendered or discontinued insurance policies or within the occasion of demise
through the coverage time period. These prices are returned provided that the policyholder survives
the coverage time period.

LIC SIIP: Assured Additions

The plan gives
assured additions too (form of loyalty advantages).

I talked about assured additions in my put up on LIC Nivesh Plus (a single premium ULIP from LIC. These are simply advertising gimmicks. All the pieces finally comes out of your cash.

LIC SIIP plan: How will the maturity
proceeds be taxed?

The demise profit is all the time exempt from tax.

The identical will not be
true for the maturity profit.

For maturity proceeds to be exempt from tax, the Sum Assured needs to be at the very least 10 instances the annual premium. If this situation will not be met, the maturity proceeds are taxable. There may be TDS of 5% too.

In case your age on the
time of entry within the plan is lower than 55 years, your life cowl (Sum Assured)
will probably be 10 instances Annual Premium. No tax drawback on this case. The maturity
proceeds will probably be exempt from tax.

Nonetheless, in case your entry age is 55 or above, the Sum Assured is 7 instances the annual premium. Whereas this helps you save a bit on mortality prices, the flipside is that the maturity proceeds will probably be taxable.

LIC SIIP plan: What are the returns
like?

I reproduce the
illustration given within the gross sales brochure.

LIC SIIP plan returns calculation

The illustration
exhibits returns for gross funding returns of 4% and eight% p.a. (as mandated by
IRDA). Being a ULIP, you’d count on the investments to earn a better return
however that’s not necessary proper now. The returns can even rely in your age
and the funds chosen.

Let’s take into account the instance with a coverage time period of 25 years and gross returns of 8% p.a. The investor pays a quarterly premium of Rs 30,000 for 25 years and will get Rs 69.17 lacs on the time of maturity. Notice that is together with Return of Mortality prices and Assured Additions. Whole funding was Rs 30 lacs.

It is a web return of 6.07% p.a. 1.94% p.a. of your return gone as a consequence of varied prices.

Not enticing.

In case your funding earned 8% p.a. you’d have Rs ~92.07 lacs on the finish of 25 years. LIC SIIP prices eat away 37% of the gross returns. Not achieved.

Factors to Notice

  1. The returns will probably be increased (decrease) if the gross returns are increased (decrease).
  2. The returns will probably be decrease (increased) if the entry age is increased (decrease).
  3. This illustration is for an offline plan (by an agent). Offline plans have increased prices. On-line plans are cheaper. All the pieces else being the identical, the web plan will give higher returns.
  4. This illustration is for a 30-year-old. For this investor, the Sum Assured is 10 instances the annual premium. Therefore, the maturity proceeds will probably be exempt from tax.
  5. For the entry age 55 years or above, the Sum Assured is barely 7 instances Annual Premium. Therefore, the maturity proceeds will probably be taxable. The demise profit will nonetheless be exempt from tax. There isn’t any illustration for this case within the gross sales brochure.

LIC SIIP: Do you have to make investments?

I counsel you don’t.
Please hold your insurance coverage and funding wants separate.

To your insurance coverage
wants, buy a plain vanilla time period life insurance coverage plan.

To your funding
wants, buy pure funding merchandise (and low-cost merchandise) comparable to PPF,
mutual funds and many others.

Nonetheless, in case you should make investments on this plan, buy the plan on-line. Moreover, notice that, in case your entry age is 55 or above, the maturity proceeds will probably be taxable.

The put up was first revealed in March 2020.

Extra Learn/Supply

  1. LIC SIIP Plan (Plan 852): Product Brochure
  2. LIC SIIP Plan (Plan 852): Coverage wordings
  3. LIC Nivesh Plus web page on LIC web site
  4. Tips on how to choose the Finest ULIP?
  5. Why I want Mutual Funds over ULIPs?
  6. ICICI Prudential Life Signature ULIP
  7. How varied prices in ULIPs destroy your returns?
  8. In a ULIP, you pay extra for the life cowl as in comparison with Time period Life Insurance coverage Plans
  9. In conventional plans and ULIPs, your age impacts your returns
  10. The issue with Single Premium Life Insurance coverage Plans
  11. The Total Life Insurance coverage Premium will not be taxdeductible
  12. In case you are previous, don’t purchase ULIPs

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