LIC Jeevan Ankur Policy Review

When it comes our children's future, every parent wants to make sure they are leaving behind a legacy for their future. I would argue that it is the RIGHT THING to do so that their financial lives are secure when they grow up into adults. So, LIC's Jeevan Ankur policy is clevely designed to fill this need.

Jeevan Ankur Basics

Jeevan Ankur is an endowment policy. This means, you pay your premiums till the maturity date, and once the policy matures, you get your sum assured money back and some more in the form of loyalty additions. You receive loyalty additions if you stick with the policy 10 years. Also, loyalty addition amount is is variable and depends on the profitability of LIC in the year in which it is paid out.

Return on Investment

Let's take a couple of hypothetical use cases as example. This use case appears on LIC website.

Example 1:

Age of Parent: 35 yearsPolicy term: 10 years
Mode of premium payment: Yearly
Amount of annual premium: Rs. 9055
Sum Assured: Rs. 100,000

After 10 years, you would pay Rs. 90,550 in premiums.

LIC uses two scenarios for loyalty addition bonus. Scenario 1 where you get nothing. Scenarios 2 is where you get 20% of sum assured, which comes out to Rs. 20,000.

In essense, after spending Rs. 90,550 and keeping that money for 15 years, you would receive Rs. 1,20,000. Your CAGR (Compounded Annual Growth of Return) is ONLY 2.86%.

Please note that LIC has used 20% loyalty addition. This is actually quite high and seems unrealistic. In other policies, they use 4% and 8% numbers. So, I am not sure which number to believe to be realistic. Your CAGR will ONLY be 1.96% if you go with conservative number of 10% as loyalty additions.

Example 2:

Age at entry: 35 years
Policy term: 25 years
Mode of premium payment: Single
Amount of annual premium: Rs.40900
Sum Assured : Rs. 100,000

After 25 years, you would pay Rs. 40,900 in premiums as it is a single term policy.

LIC uses two scenarios for loyalty addition bonus. Scenario 1 where you get 9% of sum assured, which comes out to Rs. 9000. Scenarios 2 is where you get 180% of sum assured, which comes out to Rs. 180,000.

In essense, after spending Rs. 40,990 and keeping that money for 25 years, you would receive Rs. 1,09,000. Your CAGR (Compounded Annual Growth of Return) is ONLY 3.99%. In the second scenario, your CAGR would be 7.99%.

I personally find it very hard to believe the difference in loyalty addition between first and second scenario is quite high to the point that looks too good to be true. Also, there is no explanation for such a large difference and it makes me very suspect. Lastly, the numbers used by LIC in these examples are hypothetical. I really wish they posted some real, concrete numbers they have given out in the past.

Insurance

There is an insurance component to this policy. If the policy holder dies while the policy is in effect, the child will receive the sum assured. Also, LIC makes the following cryptic statement which I have been able to decipher. I will let you decipher on your own. In addition to the basic sum assured, the nominee receives an income benefit equal to 10% of Basic Sum Assured shall be payable on each policy anniversary, from the policy anniversary coinciding with or next following the date of death, till the end of the policy term. Insurance component seems ONLY minor. It does not really provide great protection. So, it is certainly not a replacement for your other insurance policies.

Alternatives to Jeevan Ankur

Let’s assume you deposit your entire policy's payment in Fixed Deposit scheme that gives you 8.75% rate of interest that compounds quarterly.

Hypothetical Returns on Term Deposit

A	Deposit Term	9	12	25
E	Deposit Amount	90,550	90,550	90,550
B	Interest Rate	8.75%	8.75%	8.75%
C	Compounded Interest	1,06,000	1,64,000	6,90,000
D	Maturity Value	1,97,000	2,55,000	7,88,622
E	Compound Annual Growth Rate	9.04%	9.04%	9.04%

 

As you can see, your returns are much higher if you simply deposited your premium in a bank account and held it for a long time. If you are investment-inclined, you may also want to invest it in mutual funds for higher returns. See A Simple Guide to Stock Market Investing in India. In addition to this investment, you may also want get a simple term-life policy that costs very little. For few thousand rupees per year, you may be able to obtain insurance of Rs. 25 lakhs sum assured. This will leave a huge sum to your children if something happens to you and you die.

Conclusion

There are better alternatives to Jeevan Ankur policy. If investment is your goal, then make sure you get the best possible returns from simply investing in fixed deposits (if you are conservative) or invest in mutual funds or stock if you like to take risks. If insurance is your goal, then simply get a term-life insurance policy that charges very little premium for a large insurance cover.