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I am talking about specific endowment policy: Jeevan Anand. Firstly, there was old Jevaan Anand (Plan 149). And now there is new Jeevan Anand (plan 815). I had old Jeevan Anand policy. It is endowment policy (lifecover + maturity amount). My agent gave me very detailed quotations. I have uploaded the quotation on my dropbox: link

I paid only one premium, but then reading online I felt as if the policy is not that good. So I discontinued it. Now I got a revival notice from LIC saying better bonus accrued. My agent also called me back saying try reviewing quotation, the new policy is not that good, but old one is just fine.

I am trying to evaluate it only in terms of returns, not life cover (though I know facts like I should not mix investment and lifecover, since I just want to give it a try to know, say, how it fairs against FDs and other tax saving options like PPF. EPF).

My yearly premium is Rs. 26289. On this amount I will save tax of Rs. 7887. So net premium is Rs. 18402. If I take 7.5% annual returns quarterly compounding with zero initial investment and if I create one FD every year for 20 years, on 20th year I will get 8.7L on FD of Rs. 18402 and 12.5L on FD of Rs. 12.5L (LESS TAX). Calculations can be seen in this screenshot: link

Now with the policy I will get 9.65L at the end of 20 years as can be seen in quotation. (I will also get 5L when I am 100 years old, which I am ignoring since I cant see how much actual value will be considering inflation).

As per quotation the policy gives 8.53% returns considering tax benefits. Plus any bonus and finally a life cover. Isnt it good? Should I revive this policy? Or am missing something? Does it fair good against popular tax saving options such as PPF, EPF (which also offer 8.0+ interest rate)?

Am noob in finance. Just trying it out.

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Or am missing something?

Yes. The rate of 8.53 is illustration. There is no guarantee that the rate will be applicable.

My yearly premium is Rs. 26289. On this amount I will save tax of Rs. 7887. So net premium is Rs. 18402.

The other way to look at this is invest Rs 26289 [or actually less of Eq Term Deposit premium]. If you invest into Eq Term Deposit [lock-in for 6 years] with tax benefits, your numbers are going to be very different and definitely better than LIC returns.

Edits:

  1. Read the quotation lined. It says certain assumption have been made. If you read the illustration for Rs 1,00,000 on LIC website it shows simulation of 2 assumed rates and clearly specifies its not guaranteed.
  2. Yes a pure term plan will cost fraction of the premium you are paying. If you invest the difference in Tax Free FD's in Banks, the returns will be much higher than the policy.
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  • Thanks for quick response. I have some doubts. (1) How there is no guarantee of that rate? As you can see the maturity amount is fixed at 9.65L. So it should be at least 8+% right (as I tried calculating in this screenshot)? (2) Also not able to get your second point. Do you mean to say that term policy with equivalent life cover will cost far less premium? or do you mean anything else?
    – RajS
    Commented Jul 27, 2016 at 16:23
  • seems that this policy compares well against PPF which is having rate of 8.1%. (but not EPF/VPF) Isnt it @Dheer?
    – Mahesha999
    Commented Jul 28, 2016 at 12:08
  • @Mahesha999 It would if the Policy guaranteed the rate of 8+. Like I said in the edit, its not.
    – Dheer
    Commented Jul 28, 2016 at 13:18
  • Hi Dheer, thanks for your reply. Was doing some calculations to get your second point. I tried finding lic e-term premium for sum assured of 2500000 (min allowed) over 20 yrs. That required premium of 3105INR. For remaining amount (26289-3105=23184). I calculated returns on 5 years tax saving FD for 20 years for current rates of 7.5% as shown here. It turns out to be 1,027,878INR. With policy I will get 9.65L. Is this how to compare? Is this what u meant with "returns will be much higher than the policy"?
    – RajS
    Commented Aug 6, 2016 at 19:55
  • Just trying to learn to do such calculations and comparisons. Did I do any mistake with above calculations (apart from not considering tax benefit I can get from Tax saving FDs and tax deductions on interest earned)?
    – RajS
    Commented Aug 6, 2016 at 20:04

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