New Product Review: LIC Jeevan Utkarsh

The LIC recently launched a single premium endowment plan called “Jeevan Utkarsh” (Plan No: 846). The plan is stated to be “close ended”, and will not accept further subscriptions later than 270 days (roughly 9 months) post launch.

Jeevan Utkarsh is available for individuals aged 6 to 47, and has a minimum Sum Assured of Rs 75,000 with no upper limit. The Premium Rates range from Rs 528 to Rs 658 per Rs 1,000 of Sum Assured, meaning that the single premium amount for a 10 Lakh Sum Assured for a 30-year-old will be in the range of Rs 5.61 lakh.

Jeevan Utkarsh is a non-linked or ‘traditional’ plan, which means that unlike ULIP’s, returns from the plan are not linked to the securities markets. As with all single-premium policies, GST of 18 per cent will be applicable on 10 per cent of the premium amount. Essentially, a tax of 1.8 per cent would be levied on the premium amount.

How Does The Plan Work?

Jeevan Utkarsh is relatively simple to understand. You pay a onetime premium and receive a Sum Assured in exchange. A slightly ambiguously worded “loyalty addition” is applicable on the Sum Assured value. This loyalty addition is either payable at maturity after 12 years (along with the Sum Assured), or on the death of the policy holder, if it were to occur between the 5th and 12th year following the purchase of the policy. If the policyholder dies before the 5th year, only the “basic Sum Assured on death” is payable, which is essentially 10X the premium paid (in the above stated example, Rs 56.1 lakh – not an insignificant amount, mind you).

The policy wordings do precious little in terms of allowing one to predict the actual rate of this loyalty addition, merely stating that this amount will accrue “at such rate and on such terms as may be declared by the Corporation.”

Jeevan Utkarsh As A Risk Transfer Tool

Jeevan Utkarsh actually fares quite well as a Risk Transfer tool, offering a minimum death benefit as high as 10 times the onetime premium (“basic sum assured on death”). This death benefit amount is expected to be higher after the 5th year, as a loyalty addition will be payable alongside the basic sum assured on death.

Having said that, an individual can achieve a much better death benefit with a simple term plan. LIC’s e-Term plan, for example, can provide the same 30-year-old with a cover of Rs 55 lakh in exchange of a small annual premium in the range of Rs 7,500. Over a 12-year period, this works out to a ‘sunk cost’ of roughly Rs 90,000.

Jeevan Utkarsh As An “Investment”

It’s difficult to evaluate Jeevan Utkarsh as an investment, because the pivotal “loyalty addition” factor is ambiguous in nature. However, we can make a calculated guess in this regard. Considering that the bulk of traditional plan investments flow into G-Secs, we can most likely expect the annualised “returns” from this policy to be equal to, or to slightly outpace G-Sec returns. Given that on average, 2 per cent of the premium is paid out as commission, and claims (being high, at 10X the Sum Assured) could further erode the “returns” from the plan, one can reasonably predict a loyalty addition of Rs 150 to Rs 200 per Rs 1,000 of Sum Assured (15 per cent to 20 per cent), at best. Long story short, this would translate to an IRR of 6 per cent to 6.5 per cent on your cash flows, after factoring in GST. That is, your maturity amount (on a commitment of Rs 5.7 lakh) can be expected to be approximately Rs 12 lakh.

End Note

Although it is a smartly packaged product, the ambiguity related to the loyalty additions reduces the product’s sheen to an extent. For instance, what if the loyalty addition were to be just Rs 100 per 1,000 of Sum Assured? That would bring down the IRR of the policy to just 5.62 per cent. If you’re opting for a variable return product anyway, why not invest into a more aggressive asset class (for instance, a balanced mutual fund) and combine it with a term plan instead? 12 years is a long time, and even Rs 5 lakh can grow to Rs 19 lakh or more at a reasonable growth rate of 12 per cent per annum. Choose Jeevan Utkarsh only if you’re completely averse to the risk of capital erosion, and hell bent on not looking beyond Life Insurance as a savings tool. Else, combining LIC’s e-Term with a Balanced Mutual Fund presents a superior option.