- Date : 25/03/2023
- Read: 3 mins
The recent proposal in Budget 2023 eliminates tax advantages on non-linked, traditional policies.
Numerous insurance agents are trying desperately to reach out to customers to get them to buy traditional financial policies before March 31. It is because of the recent proposal in Budget 2023 that eliminates tax advantages on non-linked, traditional policies. The earning from life insurance products are not taxed because of Section 10 (10D) if the death benefit is ten times the premium (annual). However, this rule will now change on April 1. From April 1, the income from these policies will be taxed if the annual premium is more than Rs. 5 lakh in aggregate.
Life Insurance Corporation of India has launched its latest product, the Jeevan Azad. It falls under the category mentioned earlier. The policy is a non-linked, participating, guaranteed endowment product. LIC is focussing heavily on this category. The policy will have limited terms for paying premiums and offer guaranteed returns at maturity.
You will receive the base sum assured mentioned in your policy upon maturity. The minimum sum assured is Rs. 2 lakh, and Rs. 5 lakh is the maximum. You can receive the assured sum at once upon maturity. If required, you can also choose to receive it over five years in installments. In the event of a policyholder's demise, the dependants or nominees will receive an amount higher than the basic sum assured of around seven times the annual premium paid, equating to at least 105% of the complete paid premiums before death.
A policyholder can choose the installment plan for death benefits. The dependants will receive the amount monthly, half-yearly, annually, or quarterly over the next five years.
Also Read: Calculate your LIC policy's surrender value.
Low Returns But High Safety
The plan's brochure suggests that an individual 30 years of age who chooses a basic assured sum of Rs. 2 lakh, with 18 years of policy tenure and a 10-year premium-paying period, must pay Rs. 12,083 in annual premiums, not including GST. The total premium over ten years would be Rs. 1,20,830, and the policyholder shall receive Rs. 2 lakh after 18 years (upon maturity). It equates to a 3.76% internal rate of return at maturity.
Optima Money Managers Founder Pankaj Mathpal says you know the maturity benefit and minimum guaranteed surrender value in advance. However, the IRR depends on policy term, application mode, and policyholder age. It is a simple product to comprehend. However, Mathpal believes there are better options out there in the market. You can look for government securities if you want assured returns, as target maturity funds and government bond yields are higher.
Life Insurance Policy Loan
You can avail of a loan of up to 90% of the policy's surrender value. However, you have to pay two annual premiums at least. You can terminate the policy after paying two annual premiums as well. You will be eligible for tax deductions on premiums under Section 80C for up to Rs. 1.5 lakh.
You can also purchase the standard accidental insurance policy as an option for a premium waiver. It hands out payments in lump sums upon the death of a policyholder from an accident. The disability option also covers the income loss, which might not have occurred had the policyholder not been disabled by accident.
LIC is hugely popular. Currently, their low risk and high brand value make such products popular among investors. Certain investors might be interested in the product. These investors might be high-net-worth individuals who are risk-averse and want tax-free proceeds at maturity. These investors would look to get benefits under Section 80C. However, the negative is that its IRR is just 4%, which some might find low.