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Should you invest in LIC’s Jeevan Utkarsh single premium policy?

Life Insurance Corporation’s (LIC) Jeevan Utkarsh is a closed-ended single premium insurance plan. It was launched in September and is open for investments till March 31, 2018. It is a non-linked, with-profit, single premium life insurance plan which comes with an option for accidental death and disability benefit riders in its basic plan.

How it works
The amount of single premium will depend on the sum assured chosen called the basic sum assured, which will be paid on maturity of the plan. The minimum basic sum assured is Rs 75,000 and the premium will vary according to age of the policyholder.

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If the policyholder dies before the policy matures, the death benefit (10 times the single premium) along with loyalty addition, if any, will be paid to the nominee. On surviving the term, the policyholder gets the sum assured along with loyalty additions, if any, on maturity.

When will the loyalty additions be paid?
Typically, with-profit insurance policies are eligible for bonuses. Jeevan Utkarsh has no provision for bonuses but has the element of loyalty additions. According to LIC, “The policies under this plan shall participate in the profits in the form of loyalty addition which shall be payable at the time of exit after completion of 5 policy years.” It means the policy will be eligible for loyalty additions only after 5 years either on death or on surrendering the policy.

Depending on the insurer’s profitability, and hence not guaranteed, the declared loyalty addition will be added to the sum assured and paid on maturity. It’s a one time-addition to the policy unlike bonuses which are added each year when the insurance company makes a profit.

Returns on the policy
This is a policy with tax benefits under section 80C of the Income-tax Act, 1961. It’s not market-linked nor a guaranteed return plan as the returns will hinge solely on the amount of loyalty additions declared by LIC.

As per the illustration on the LIC website, here are the returns that can be expected:

For a 25-year-old who opts for a sum assured of Rs 75,000,  ..