LIC Tax Plans
Life Insurance Policy not only provides insurance but also qualifies for tax savings under section 80C of the Income Tax Act, 1961. Many people ask me as to why should we invest in plans of Life Insurance Co. of India when better returns can be obtained from other avenues like NSC, jewellery, land, etc. I tell them, please, do not confuse yourself by comparing LIC with other investments. LIC provides you with a cushion or cover for unpleasant situations or circumstances in life which no other avenues provide. One should not have unlimited investment in LIC but should form atleast 10% of your total investment portfolio. LIC has become a necessity for every investment planner. Premium paid for LIC not only qualifies for deductions u/s 80C but the maturity proceeds of a LIC policy is also tax free u/s 10(10D).
NEW ENDOWMENT PLAN (Table 814)
This is a plan in which premium is given annually but the maturity proceeds are given to the life insured only after a fixed period of time. Let us take an example:
Name : Mr. A
Age : 30 years
Term : 16 years
Double Accident Benefit : 5,00,000 (If death is caused by accident, 5 lac extra would be received)
Sum Assured : 5,00,000
In the above case, 1st year premium with service tax 3.75%, as per Notification No.15/2015-Service Tax, dated 19th May, 2015 and Notification No.05/2015 dated 1st of March, 2015, would result in yearly premium of Rs. 32,767/- (31585 + 1184(ST)). From next year onwards service tax would be at lower rate of 1.875% so it would come to Rs. 32,177/- ( 31585 + 592).
Approximate tax saved every year is 9830/-, 30% of 32767/-, assuming that the assesses is in the highest tax slab of 30%.
Total approximate paid premium over the years would be Rs. 5,15,422/-. This is derived by multiplying the yearly premium with the premium term, i.e, 32767+(32177 X 15) = 5,15,422/-
Approximate return at maturity time:
Sum Assured : 5,00,000/-
Bonus : 3,36,000/-
Final Additional Bonus (FAB) : 12,500/-
Total approximate return at maturity date is Rs. 8,48,500/-
JEEVAN ANAND (Table 815)
This is an endowment plan with the tagline…”Jindagai ke sath bhi aur jindagi ke baad bhi”. It means that you would get the full benefits or maturity proceeds on survivorship, i.e, completion of term and later again your family would get the sum assured when the insured dies or reaches the age of 80.
Name : Mr. A
Age : 30 years
Term : 16 years
Death Sum Assured : 6,25,000
Sum Assured : 5,00,000
In the above case, 1st year premium with service tax 3.75%, as per Notification No.15/2015-Service Tax, dated 19th May, 2015 and Notification No.05/2015 dated 1st of March, 2015, would result in yearly premium of Rs. 38,291/- (36907 + 1384). From next year onwards tax would be at lower rate of 1.875% so it would come to Rs. 37,599/- ( 36907 + 692).
Approximate tax saved every year is 11487/-,30% of 38291/-, assuming that the assesses is in the highest tax slab of 30%.
Total approximate paid premium over the years would be Rs. 6,02,276/-. This is derived by multiplying the yearly premium with the premium term,i.e, 38291+(37599 X 15) = 6,02,276/-
Approximate return at maturity time:
Sum Assured : 5,00,000/-
Bonus : 3,60,000/-
Final Additional Bonus (FAB) : 12,500/-
Total approximate return at maturity date is Rs. 8,72,500/-, plus life time Rs. 5,00,000/- risk cover.
JEEVAN TARUN (Table No. 834)
This is a children policy for child before 12 years of age. Premium is paid till the child reaches the age of 20. The policy matures when the child attains the age of 25 years. If some untoward incident happens with the proposers, then the future premium payments are waived and maturity benefits of the policy are not disturbed. In this policy, we have to make one choice out of the following four:
- No survival, maturity benefit 100% of sum assured
- 5% of Sum Assured for 5 years, Maturity benefit of 75% of sum assured.
- 10% of Sum Assured for 5 years, Maturity benefit of 50% of sum assured
- 15% of Sum Assured for 5 yers, Maturity benefit of 25% of sum assured.
Suppose, we choose the option, 10% of Sum Assured for 5 years, maturity benefit of 50% of sum assured.
Name : Master A
Age : 10 years
Proposer’s Age : 40 (Father or Mother)
Term : 10 years
Death Sum Assured : 6,25,000
Sum Assured : 5,00,000
Premium Waiver Rider : Yes
In the above case, 1st year premium with service tax 3.75%, as per Notification No.15/2015-Service Tax, dated 19th May, 2015 and Notification No.05/2015 dated 1st of March, 2015, would result in yearly premium of Rs. 46,571/- (44888 + 1683). From next year onwards tax would be at lower rate of 1.875% so it would come to Rs. 45,730/- (44888 + 842).
Approximate tax saved every year is 13971/, 30% x 46571/-, assuming that the assesse is in the highest tax slab of 30%.
Total approximate paid premium over the years would be Rs. 4,58,141/-. This is derived by multiplying the yearly premium with the premium term,i.e, 46571+(45730 X 9) = 4,58,141/-
Money Back At:
20 to 24th Total 5 year : 50,000 (i.e, 50000 X 5 = 2,50,000)
Bonus : 2,85,000/-
Final Additional Bonus (FAB) : 10,000/-
Approximate Return at Maturity Time : 25th year (50% Sum Assured + Bonus + Final Additional Bonus) 5,45,000-
Total approximate return is Rs. 7,95,000/-
BIMA BACHAT(Table no. 816)
This is a single premium plan, when only one premium is paid and maturity is received after certain fixed number of years.
Name : Mr A
Age : 30 years
Term : 9 years
Sum Assured : 5,00,000
The Single Premium with service tax 3.75%, as per Notification No.15/2015-Service Tax, dated 19th May, 2015 and Notification No.05/2015 dated 1st of March, 2015,would be Rs. 367363/- (354085 + 13278)
Approximate tax saved is 45000/- (30% on maximum allowable u/s 80C , Rs. 1,50,000/-)
Money Back At:
3rd year : 75,000/-
6th year : 75,000/-
Loyalty Addition (LA) : 55,000/-
Approximate return at maturity time 9th year (single premium paid + Loyalty Addition) Rs. 4,22,363/-
Total approximate maturity Rs. 5,72,363/-
JEEVAN AKSHAY VI( Table No.
This is a pension plan where the annuity starts immediately. Suppose, we choose the option of ‘Annuity for life with return of purchase price.
Age : 40
Sum Assured : 5,00,000/-
Single Premium : 5,07,500/-
Annual annuity is Rs. 34,150/- and on death the sum of Rs. 5,07,500/- shall be given back to the nominee.
(Author Details: Pawan Kumar Sharma- The author can be reached at pkshillong@gmail.com)
