Tuesday, December 16, 2008

The LIC way of fooling people


LIC Jeevan Aastha is a new LIC offering which is open just for 45 days, meaning think less, get in quickly as time is the essence and in the process get duped. The following is what LIC site says and no LIC agent will explain to the Aam Admi.
A)Death Benefit: On death during the first policy year: Basic Sum Assured with Guaranteed Addition.
On death during the policy term after first policy year, excluding last policy year: 1/3rd of Basic Sum Assured with Guaranteed Addition.
On death during last policy year: 1/3rd of Basic Sum Assured with Guaranteed Addition along with loyalty addition, if any
B)Maturity Benefit: On maturity, the maturity Sum Assured along with Guaranteed Addition and Loyalty Addition, if any, shall be payable.Maturity Sum Assured shall be 1/6th of Basic Sum Assured.
C)Guaranteed Addition: The policy provides for Guaranteed Addition at the following rates:
· Rs. 100 per thousand Maturity Sum Assured per year for a policy of 10 years term.
· Rs. 90 per thousand Maturity Sum Assured per year for a policy of 5 years term.
D)Loyalty Addition: Depending upon the Corporation’s experience the policy will be eligible for Loyalty Addition on death during the last policy year or on the Life Assured surviving the stipulated date of maturity at such rate and on such terms as may be declared by the Corporation

Life insurance is is a contract between the policy owner and the insurer where the insurer agrees to pay a sum of money upon the insured individual's death to his/her nominee.

You need not be an IIM MBA to know that the probability of one's dieing increases with the increase in age.

This insurance product is perhaps the first insurance product in the world which gives a DECREASING cover that is as your chances of dieing increases with time your insurance cover decreases. Who benefits from such a plan, of course the company and not the Aam admi. So as an insurance policy LIC Jeevan Aastha is a very poor policy made with the benefit of insurance company in mind and not the insured person.

The advisors and agents of LIC are promoting this product as a 10% safe, tax free return. Again, it is nothing but making fools of people as the guaranteed 10% return is not on the basic sum assure but on the maturity sum assured and maturity sum assured is "Maturity Sum Assured shall be 1/6th of Basic Sum Assured." This can be better understood if you see the illustrations given in the LIC site. After 10 years for a 35 year old Rupees 48,975 (forty eight thousand nine hundred seventy five) becomes Rupees 1,00,000 (one lakh) which will be somewhere around 7% thus making PPF (as an investment) more attractive than this product as both of them are tax free and gets 80C benefit.

This product is nothing but a ploy of LIC to suck liquidity from the hands of Aam admi and using the proceeds to give loans to corporate India or shore up the tanking stock markets by confusing and pretending to be giving 10% return as well as insurance. This scheme has been kept open for just 45 days to make an impression that it is a limited period offer with unexpected benefits.

This product of LIC is a purely thumbs down both as an insurance and as an investment.

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