How to Plan Retirement with LIC policy?
Planning a relaxed retirement with your hard-earned money is really important because it involves uncertainty of return on the invested amount. Retirement planning can be achieved by purchasing single premium guaranteed annuity plans like LIC Jeevan Shanti and Jeevan Akshay. But single premium plans like Jeevan Shanti and Jeevan Akshay need a huge amount at your disposal to invest in these plans. So another approach can be planning to save a real big corpus just before retirement by investing in long term schemes like Public Provident Fund (PPF), more contribution to Employee Provident Fund (EPF) in case salaried employees, Systematic Investment Plans (SIP), taking conventional endowment plan from Life Insurance Corporation (LIC) of India. Here we have discussed how one can diversify one's investment for the generation of retirement corpus with LIC.
The basic idea behind this planning is to invest into endowment plans like Jeevan Labh (936), New Endowment Plan (914) for long term. The New endowment plan (914) is recommended for this purpose because of its income tax exemption on paid premium under 80c, tax-free maturity under 10(10D), low premium, long history of Simple Revisionary Bonus (Bonus) and Final Additional Bonus (FAB), which helps to calculate maturity accurately.
New endowment plan provides lumpsum maturity amout on completion of policy term which is equal to Basic Sum Assured + Simple Revisionary Bonus + FAB. Following table explains benefits of the new endowment policy for 25 years old policyholder. Bonus and FAB rates are explained after the table.
| Age | 25 Years |
| Policy Term | 30 Years |
| Sum Assured | 15,00,000 |
| Yearly Premium | 44,157 |
| Total Paid Premium | 13,24,710 |
| Age at Maturity | 55 Years |
| Total Bonus (@ Rs. 48) | 21,60,000 |
| Total FAB (@ Rs. 1120) | 16,50,000 |
| Total Maturity (Approx) | 53,10,000 |
| IRR | 7.91% |
Looking at the benefit explained in the above table, it is prudent to add the New endowment plan (914) to his/her portfolio of investment to generate a good corpus for retirement planning. We have maturity calculator of new endowement plan (914) on this site which can be utilized to calculate benefits as per individual requirements.
Clarification on Bonus and FAB
New Endowment plan (914) is recently launched but it is simply revised version of the New endowment Plan (814) and it was revised to incorporate surrender clause as per IRDA regutions. And the New Endowment Plan (814) is revised version of Endowment Assurance Plan (14) to incorporate another IRDA guideline to show premium and Services tax (now GST) separately back in 2013. Following table shows bonus rates for more than 20 years policy term of these three plan in continuity.
| Year(Plan) | 2003(14) | 2004(14) | 2005(14) | 2006(14) | 2007(14) | 2008(14) | 2009(14) | 2010(14) | 2011(14) | 2012(14) | 2013(14) | 2014(814) | 2015(814) | 2016(814) | 2017(814) | 2018(814) | 2019(814) | 2020(914) |
| Bonus Rate | 50 | 50 | 46 | 48 | 48 | 48 | 48 | 48 | 48 | 48 | 48 | 48 | 48 | 48 | 48 | 48 | 48 | 48 |
Looking at the above table it is reasonable to consider Simple Revisionary Bonus (Bonus) rate as Rs. 48 per thousand of sum assured per year year during the policy term. The Final Additional Bonus is applicable for policies which complete 15 years. LIC has not declared FAB for plan numbers 814 and 915 because these plan has not completed 15 years. FAB rate of plan number 14 has been declared and it is okay to take FAB rate of plan number 14 for maturity projection of currenty available plan 914.
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