How to Plan Retirement with LIC policy?
How to Plan Retirement with LIC policy?

How to Plan Retirement with LIC policy?

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Planning a relaxed retirement with your hard-earned money is really important because it involves uncertainty of return on the invested amount. Retirement planning can be achieved by purchasing single premium guaranteed annuity plans like LIC Jeevan Shanti and Jeevan Akshay. 

But single premium plans like Jeevan Shanti and Jeevan Akshay need a huge amount at your disposal to invest in these plans. So another approach can be planning to save a real big corpus just before retirement by investing in long term schemes. 

Like Public Provident Fund (PPF), more contribution to Employee Provident Fund (EPF) in case salaried employees, Systematic Investment Plans (SIP), taking conventional endowment plans from Life Insurance Corporation (LIC) of India. 

Here we have discussed how one can diversify one’s investment for the generation of retirement corpus with LIC.

The basic idea behind this planning is to invest into endowment plans like Jeevan Labh (936), New Endowment Plan (914) for the long term. The New endowment plan (914) is recommended for this purpose because of its income tax exemption on paid premium under 80c, tax-free maturity under 10(10D), low premium, long history of Simple Reversionary Bonus (Bonus) and Final Additional Bonus (FAB), which helps to calculate maturity accurately.

New endowment plan provides a lump sum maturity amount on completion of policy term which is equal to Basic Sum Assured + Simple Reversionary Bonus + FAB. Following table explains benefits of the new endowment policy for 25 years old policyholders. Bonus and FAB rates are explained after the table.

Age 25 Years
Policy Term 30 Years
Sum Assured 15,00,000
Yearly Premium 44,157
Total Paid Premium 13,24,710
Age at Maturity 55 Years
Total Bonus (@ Rs. 48) 21,60,000
Total FAB (@ Rs. 1120) 16,50,000
Total Maturity (Approx) 53,10,000
IRR 7.91%

Looking at the benefits explained in the above table, it is prudent to add the New endowment plan (914) to his/her portfolio of investment to generate a good corpus for retirement planning. We have a maturity calculator of the new endowment plan (914) on this site which can be utilized to calculate benefits as per individual requirements.

Clarification on Bonus and FAB

New Endowment Plan (914) was recently launched but it is simply a revised version of the New endowment Plan (814) and it was revised to incorporate a surrender clause as per IRDA regulations. 

And the New Endowment Plan (814) is a revised version of Endowment Assurance Plan (14) to incorporate another IRDA guideline to show premium and Services tax (now GST) separately back in 2013.

Following table shows bonus rates for more than 20 years of policy terms of these three plans in continuity.

Year(Plan) Bonus Rate
2003(14) 50
2004(14) 50
2005(14) 46
2006(14) 48
2007(14) 48
2008(14) 48
2009(14) 48
2010(14) 48
2011(14) 48
2012(14) 48
2013(14) 48
2014(814) 48
2015(814) 48
2016(814) 48
2017(814) 48
2018(814) 48
2019(814) 48
2020(914) 48

Looking at the above table it is reasonable to consider the Simple Reversionary Bonus (Bonus) rate as Rs. 48 per thousand of sum assured per year during the policy term. The Final Additional Bonus is applicable for policies which complete 15 years. 

LIC has not declared FAB for plan numbers 814 and 915 because these plans have not completed 15 years. The FAB rate of plan number 14 has been declared and it is okay to take the FAB rate of plan number 14 for the maturity projection of currently available plan 914.

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