Is LIC Jeevan Umang Worth Investing In? A Comprehensive Analysis
When it comes to choosing an insurance policy that offers guaranteed returns, the decision can be complex and often misleading. This article delves into the intricacies of LIC Jeevan Umang, a popular insurance plan in India, and provides a thorough analysis to help readers make informed decisions.
Introduction to Jeevan Umang
LIC Jeevan Umang is a well-known insurance plan offered by Life Insurance Corporation of India (LIC). It typically promises assured returns to policyholders, which often leads to questions about its legitimacy and true benefits. This article aims to demystify the claims made about Jeevan Umang and provide a balanced perspective.
Guaranteed Returns and Scams
Many financial advisors and policyholders claim that Jeevan Umang and similar insurance plans promise guaranteed returns, which they consider as a SCAM. According to experts, the true net yield of such policies is around 4.5% based on various assumptions, including the premature death of the policyholder. However, this yield is significantly affected by additional costs such as service tax, and the actual return is even lower.
Moreover, a detailed calculation reveals that the internal rate of return (IRR) for a 20-year policy starting at 30 years old is only 4.15%, after discarding any potential tax deductions, and without considering any bonus payments.
Impact of Life and Policy End Events
A recent inquiry about the pension payout raised concerns about the plan's flexibility. If a person starts receiving pension after turning 70 and then dies before the full 20 years, the policy does not offer a proportionate pension from the last August to June. This means that for the applicant, the loss is minimal, but for the policyholder, it can be significant.
Long-Term and Short-Term Perspective
It is crucial to view insurance policies, including Jeevan Umang, more as a long-term expense rather than an investment. The term 'investment' is often misused when discussing insurance. Unlike conventional investments, insurance policies do not offer substantial wealth creation. Instead, they provide financial protection and security.
For those seeking comprehensive coverage, it is advisable to explore pure term plans that offer the cheapest coverage with no maturity value. Term plans from various insurance providers such as Max Life, Kotak, HDFC Life, and Aegon can be excellent alternatives. For instance, Kotak offers a term plan where premiums are paid only for the first five years, and coverage is provided till the age of 75.
Alternatives to Jeevan Umang
Considering the arguments for and against Jeevan Umang, it becomes evident that alternative term plans offer significant benefits. For a policy starting at 30 years old and running for 20 years, the IRR is 4.15%. This figure does not account for taxes and bonuses, which further reduce the net return. Therefore, investing in term plans from other providers tends to be more cost-effective and potentially offers better coverage.
It is also essential to understand that no insurance policy can make the policyholder wealthy, even at maturity. Therefore, treating insurance like an expense, rather than an investment, is more appropriate. The primary purpose of insurance is to provide financial protection and ensure that policyholders are adequately covered in case of unforeseen events.
Conclusion
After a detailed analysis, it appears that investing in LIC Jeevan Umang or similar policies may not be the best long-term financial strategy. While these policies provide a sense of security and financial protection, they may not offer the returns that many expect. For those looking for a more cost-effective and flexible insurance option, exploring pure term plans from other providers is recommended.