Jeevan Anand – Joy for the agent, not for the buyer

Jeevan Anand, now New Jeevan Anand, is one of the most popular plans in the portfolio of LIC products. An unofficial package of these policies, called Retire-and-Enjoy, has been pushed by many insurance agents in the past. In this short article, we see how this plan is inferior to a combination of a pure term insurance and a pure financial product.

Endowment plans are always popular with insurance companies and agents. Due to aggressive positioning, they also become the default choice for many individuals looking for life insurance. In this article, we compare this investment linked product with a separate investment product and show that it helps to not mix insurance and investment.

Review of popular New Jeevan Anand plan

Jeevan Labh from LIC is described as a ” participating non-linked plan which offers an attractive combination of protection and savings. This combination provides financial protection against death throughout the lifetime of the policyholder with the provision of payment of lumpsum at the end of the selected policy term in case of his/her survival.” In effect, this is a typical endowment plan; it also has a feature of whole life plan thrown in. Other articles in our blog have compared endowment plans like Jeevan Labh and whole life plans like Jeevan Umang.

A lot of insurance focused sites, blogs, etc.term New jeevan Anand as one of the best endowment plans with high returns. A lot of the reviews of this plan, like other LIC plans, are featured by insurance websites. They obviously would claim that this is a great plan.

In this article, we would use the illustration provided by LIC itself and compare these two approaches:

1. Approach A – New Jeevan Anand plan for Sum Assured of 1 lac and term of 35 years
   
2. Approach B – A combination of a pure term plan for 35 years, and investment in a pure play financial product – Public Provident Fund

New Jeevan Anand – Illustration

The details at LIC illustration provides a good amount of insight into the workings of the plan. A snapshot is provided below. Please note the two scenarios of return assumptions. The assumptions are for the entire life of the policy. For a large part of the policy term, the projected death benefit is above 2 lac even in the 4% return scenario.  The benefit is of course higher in the 8% return scenario. 

The illustration image is a bit difficult to read. For comparison, please look at the various values (over the years) in the Variable column for Scenario 2.  Assuming an 8% return, this amount is s 16,000 at the end of the 5th year, 32,000 at 10th year, and so on, going up to 1,39,000 at the end of the 35th year.  The insurance agents would compare this with the total premium paid – about Rs 1,10,000 – and show how you are getting a lot of returns.

Also, after the 35th year, the plan would pay Rs 1 lac to the beneficiary on the death of the policyholder. In effect, after the policy term ends, this plan becomes like a whole life policy with a predetermined death payout.  We would show that a pure financial product like PPF can let you accumulate a much larger sum; which you can choose to pass on to the beneficiary.

Alternative Approach – Illustration

For this approach, we use these assumptions:

• A term insurance for 1.25 lac for 35 years – this is similar to the guaranteed death benefit for the first approach
• The annual premium for this plan for a 30 year old male is taken as Rs 2,200 (The lowest sum assured in Amulya Jeevan II is 25 lacs and the premium is Rs 8,040. We have taken a value of 10% of the amount, for 5% of the sum assured.)
  
• The rest of the amount of approximately Rs 2,400 is invested in a financial product in a tax efficient way. The two most suitable choices are ELSS and PPF. For this comparison, we choose PPF.

Returns in Alternative Scenario

Arguments could be made that ELSS are market products and are not suitable for all investors. Let us consider Public Provident Fund (PPF). Like life insurance, this fully exempt from tax. The minimum term of PPF is 15 years and it can be extended for a block of 5 years. The interest rates are aligned to the Gilt yields. Though there has been a downward trend, the rates are still more than 7%. To be on the conservative side, we have assumed a rate of 7% through the term.  This instrument is suitable for conservative investors too. Still, this approach provides much better returns than the 8% return scenario in Jeevan Labh.

The detailed table  illustrates the death and survival  benefits from this approach. For the term of 35 years, the term policy provides death benefits. In addition, the accumulated corpus provides additional death benefit. For the first few years, this accumulation is lower than that of New Jeevan Anand. From the eighth year onwards, this approach provides a better benefit than the endowment plan. After 35 years, the accumulated corpus is available as ‘maturity benefit’. The projected corpus of > 3.62 lacs is more than the maturity benefit from the endowment plan. And to top this, the corpus (even after some withdrawals) can be continued further if needed for blocks of five years, earning additional returns. This amount is also comparable to the ‘whole life’ payout.

End Of Year	Contribution	Sum Assured (A)	Projected corpus (B)	Projected death benefit (A+B)
1	2,415	1,25,000	2,494	1,27,494
2	2,415	1,25,000	5,168	1,30,168
3	2,415	1,25,000	8,036	1,33,036
4	2,415	1,25,000	11,111	1,36,111
5	2,415	1,25,000	14,408	1,39,408
6	2,415	1,25,000	17,944	1,42,944
7	2,415	1,25,000	21,735	1,46,735
8	2,415	1,25,000	25,800	1,50,800
9	2,415	1,25,000	30,159	1,55,159
10	2,415	1,25,000	34,833	1,59,833
11	2,415	1,25,000	39,845	1,64,845
12	2,415	1,25,000	45,220	1,70,220
13	2,415	1,25,000	50,983	1,75,983
14	2,415	1,25,000	57,162	1,82,162
15	2,415	1,25,000	63,789	1,88,789
16	2,415	1,25,000	70,894	1,95,894
17	2,415	1,25,000	78,513	2,03,513
18	2,415	1,25,000	86,683	2,11,683
19	2,415	1,25,000	95,443	2,20,443
20	2,415	1,25,000	1,04,836	2,29,836
21	2,415	1,25,000	1,14,909	2,39,909
22	2,415	1,25,000	1,25,710	2,50,710
23	2,415	1,25,000	1,37,292	2,62,292
24	2,415	1,25,000	1,49,710	2,74,710
25	2,415	1,25,000	1,63,027	2,88,027
26	2,415	1,25,000	1,77,306	3,02,306
27	2,415	1,25,000	1,92,618	3,17,618
28	2,415	1,25,000	2,09,036	3,34,036
29	2,415	1,25,000	2,26,641	3,51,641
30	2,415	1,25,000	2,45,519	3,70,519
31	2,415	1,25,000	2,65,762	3,90,762
32	2,415	1,25,000	2,87,468	4,12,468
33	2,415	1,25,000	3,10,743	4,35,743
34	2,415	1,25,000	3,35,700	4,60,700
35	2,415	1,25,000	3,62,462	4,87,462

Conclusion

New Jeevan Anand endowment plan has some good features. However, we have shown that an approach that does not mix insurance and investment provides much better returns, and flexibility, than an endowment insurance product. This is the case even for conservative investors who would prefer government backed instruments.

Related Articles

• LIC’s Jeevan Umang whole life policy – Should you buy?
• Comparison of Jeevan Labh with PPF