| . | When LIC unveiled its new Bima Nivesh insurance plan last month, it brought in the concept of single premium payment policies for the first time in the country. Some analysts have criticised that the policy is more like a fixed deposit scheme than an insurance scheme. Let us however look at the positive features of the scheme and why the policy stands out as an innovative niche market product. Bima Sandesh is available only for five or ten year period and for people in the age group of 35 years to 70 years in case of the five year policy and 35 years to 65 years in case of the ten year policy. The minimum insurable amount is Rs 25,000 and the maximum is Rs 5 lakh. There is no requirement of a medical examination even though the applicant has to furnish a declaration of good health. The insurance premium would be Rs 964 per thousand for a five year policy and Rs 902 per thousand in case of a ten year policy and would be eligible for a 20 % income tax rebate under sec 88. The policy holder would be eligible for a guaranteed bonus of Rs 85 per thousand per year for the first five years and Rs 90 per thousand per year from the sixth to ten years. The survivors would get an additional loyalty bonus at the time of final payment at a rate to be determined by LIC. There is no loan facility in the scheme. In case of the death of the life assured , within six month of the commencement of the policy, the nominee would get back 95 % of the premium paid. In case the death occurs between 6 to 12 months, the entire premium paid would be refunded. If the policy holder dies after one year the sum assured would be paid along with the accumulated bonus. The returns available at various points of time in the policy vary between 16 % pa and 76 % pa. as detailed in the table below. In calculating these returns it has been assumed that the initial premium after tax is Rs 771.20 in case of the 5 year policy and Rs 721.60 for the 10 year policy. The annualised returns have been calculated based on the notional claims at the midpoint of the given period range.
of a 5 year policy : Rs 1425 + Loyalty Bonus =17 % pa + Returns on Maturity of a 10 year policy: Rs 1875.00 + Loyalty Bonus =16.00 % pa + Thus it is clear that the policy provides a minimum return of 4 % pa to 5 % pa higher than any fixed deposit scheme if the policy holder survives the full term. The returns in the unfortunate event of the policy holder’s death earlier is around 7 % pa in the middle of the policy term. This should be treated as the risk coverage. Considering that the policies are for a very short term and the average life of the policy holders is likely to be substantially higher than in the case of other policies, it is natural that the risk coverage in this scheme is lower than in other long term policies. The most interesting aspect of the scheme is that at the end of a financial year, the investor can put his residual surplus in to the scheme without bothering about his ability to continue with similar payments in the coming years. This could therefore be a flexible portfolio ingredient for a tax planner. If the scheme succeeds, we may expect LIC to introduce single payment policies even for the long and very long term so that people can buy as much insurance as they can afford at any point of time. Na.Vijayashankar 12 th Feb 1999 | . | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||