All you want to know about LIC – Retire & Enjoy plan

September 15, 2011   ·   1 Comments

Retire & Enjoy Policy

LIC Retire & enjoy plan is a plan which provides a high cover with the safe returns of around 9%. The investments cum policies www.stockssavvy.comare always criticized for their low returns & low insurance covers. The policies offer assured returns with high insurance cover which withdraw our attention towards the product.  Lot of people doesn’t know about this product. Here is a deep dive into the policy.

Key Features:

  • Whole Life Insurance Plan i.e. insurance covers extend till the death of the insurer even after insurer stopping paying the premium payment of the policy.  The initial insurance cover will be given to the nominee of the insurer.
  • Insurance Cover increases with age: Single policy is enough to cover the liabilities which increase with the age for a person.
  • High Insurance cover: The policy offer high insurance cover & do serve the purpose of investment cum insurance plan.
  • Excellent Pension amount & rate of return are much better than Public provident Fund of 8%
  • Accident riders are also available with the policy.

Let us see couple of policies to understand the produce:

Let a 25 year old person take a policy for 30 years & take a 10 year retirement pension after the retirement:

Monthly Premium 4,000 Rs.
Yearly Premium 48,000 Rs.
Investment in 30 years 14,40,000 Rs.
Insurance Cover at the start of the Policy 18,00,000 Rs.
Insurance Cover at the end of the Policy 67,00,000 Rs.
Pension received per year 8,00,000 Rs.
Pension received in 10 years 80,00,000 Rs.
Amount received at the death of demise 18,00,000 Rs.
Total Amount received 98,00,000 Rs.
Effective Rate of Return 9.00 %

Let a 25 year old person take a policy for 35 years & take a 10 year retirement pension after the retirement:

Monthly Premium 4,000 Rs.
Yearly Premium 48,000 Rs.
Investment in 30 years 16,80,000 Rs.
Insurance Cover at the start of the Policy 21,50,000 Rs.
Insurance Cover at the end of the Policy 1,10,00,000 Rs.
Pension received per year 13,60,000 Rs.
Pension received in 10 years 1,36,00,000 Rs.
Amount received at the death of demise 21,50,000 Rs.
Total Amount received 1,57,50,000 Rs.
Effective Rate of Return 9.00 %

Where the Policy scores:

Strong Debt Instrument: A financial planning model is a ratio of Equity : debt ratio where Insurance is covered through term insurance. This is the model which most of the financial planner advocates. Equity part of investment is always asked to be invested through systematic mutual funds where debt instruments are covered though employee provident fund. On an average a ratio of 60:40 is considered to be ideal for long term tenure, though this ratio is debatable & varies from risk taking ability of the person.

Now, if that 40 percent of the money is invested in this policy, it yields a consistent return better than most of the debt instruments. In addition the high insurance cover also goes well in the policy. Policy returns (9%) are much better than public provident fund returns of 8%. Employee provident fund gives the returns of 9.5% but there is no insurance cover attached to it. These indeed question the approach of having a term insurance with the debt instruments. Should financial planner consider the plan for tax saving purpose & ask people to take this policy rather than taking debt instruments with term insurance cover.

  • Better cover than a Term Insurance cover: A common man is always in a dilemma to either go for a direct high cover term insurance when his age is less or increase the insurance cover when liabilities (such as marriage, home loan, children, car) gets added in his life. He will have to shell more bucks for additional insurance cover. This is beautifully covered in this policy as insurance cover increases with age. There is an addition of insurance cover of 4.8% compounded annually. There is one term insurance from SBI where cover increases by 5% annually & the premium also increases by 5% annually.

How much one needs to shell out just to get the same term insurance cover through SBI

Term Cover Premium

1

2,000,000

Rs. 5,500

2

2,100,000

Rs. 5,775

3

2,205,000

Rs. 6,064

4

2,315,250

Rs. 6,367

5

2,431,013

Rs. 6,685

6

2,552,563

Rs. 7,020

7

2,680,191

Rs. 7,371

8

2,814,201

Rs. 7,739

9

2,954,911

Rs. 8,126

10

3,102,656

Rs. 8,532

11

3,257,789

Rs. 8,959

12

3,420,679

Rs. 9,407

13

3,591,713

Rs. 9,877

14

3,771,298

Rs. 10,371

15

3,959,863

Rs. 10,890

16

4,157,856

Rs. 11,434

17

4,365,749

Rs. 12,006

18

4,584,037

Rs. 12,606

19

4,813,238

Rs. 13,236

20

5,053,900

Rs. 13,898

21

5,306,595

Rs. 14,593

22

5,571,925

Rs. 15,323

23

5,850,521

Rs. 16,089

24

6,143,048

Rs. 16,893

25

6,450,200

Rs. 17,738

26

6,772,710

Rs. 18,625

27

7,111,345

Rs. 19,556

28

7,466,913

Rs. 20,534

29

7,840,258

Rs. 21,561

30

8,232,271

Rs. 22,639

31

8,643,885

Rs. 23,771

32

9,076,079

Rs. 24,959

33

9,529,883

Rs. 26,207

34

10,006,377

Rs. 27,518

35

10,506,696

Rs. 28,893

  • The retirement pension amount is decent one. We don’t say this is only going to be enough. According to an estimate, if your monthly expenditure is 25,000 Rs., then your monthly expenditure will shoot up to 2,04,000 Rs. considering rate of inflation as 6.7%(average of inflation over past 63 years in India from the time of Independence)

The policy though should not be taken for short periods & for more no. of pension years which jeopardize the whole policy returns. The product needs to be understood before taken. Lot of agents sells this product as pay for 15 years some x amount & get y amount throughout the life. This is the wrong way of looking at this product.

Thumb rule of compounding works for this policy too. Check out the difference in term of insurance cover & retirement pension for policies of 30 & 35 years. We feel there is not much products which gives investor such sure returns of 9% in such a long investment horizon & give it a thumbs up for the people to do their debt planning through this policy. This also deals with the physiological barrier of taking a term insurance having no return. The pure form for wealth creation remains stocks which can’t be disputed by any policies till date.

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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  • Bharath J

    I’ve opted this plan at the age of 24 (now I’m 25), with a yearly premium of Rs.47950. A good investment cum life insurance product from LIC and I don’t think any other company is offering this kind of policy.

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