My Friend/Relative/Friend’s Father Lost Money in LIC

We have to learn lessons from the mistakes of others. But what lessons? Usually the failure of our peers in life will have more impact on us, than their success; as this article by Nikhil Swaminathan explains.

Everyone has areas of Strength and Weakness

Let us think of a situation. Many of our senior friends at schools and colleges, after pursuing degrees, are jobless today. Learning this, how many of our parents stopped us from continuing our studies? How many of us even made up our mind not to study, because our friend’s friend didn’t get a job of their choice, after graduation!

Instead, YOU studied well; YOU filled yourself with positiveness; YOU always thought about the fruitful outcome! Then all the right things happened to YOU. Now, YOU have a beautiful life.

One thing is pretty clear. We are taking decisions NOT based on, what others feel-say-think; but depending on, how good is that resolution, for our future. So what really matters is stay firm with our decisions!

Policy Term, Premium Paying Term, Grace Period, Paid up policy & Surrender Value – explained

Earlier we discussed Sum Assured & Bonuses during our discussion of Reason #6

Now we are going to get familiar with 5 most common insurance terminologies; viz. Policy Term, Premium Paying Term, Grace Period, Paid up policy & Surrender Value. Let us look at them in much more detail.

Policy Term

Definition: The policy term is the lifetime of an insurance policy in years.
Description: Policy term is the duration for which the policy provides you cover. In general, the policies issued by Life Insurance Corporation of India varies from a minimum of 10 years to 35 years, depending upon the actuarial opinion. Policy Term starts with generation of First Premium Receipt (FPR) upon payment of the first premium by the policy holder; provided the application submitted meets all requirements including KYC.

Premium Paying Term (PPT)

Definition: Premium paying term or PPT is the total number of years the corporation asks us to pay the premium as a policy holder to have the coverage.

Description: Normally we need to pay the premium for the entire policy term. However, some insurance policies give the flexibility of paying for lower number of years than the policy term.

Paid Up Policy

Definition: It is the status of the policy, if the premiums are paid for a minimum of 3 years or more, and the policy holder is reluctant to pay subsequent premiums.

Description: In some scenarios, insurers allow the insured to get the insurance benefits, even if they stop the premium payments after a stipulated period of time, by converting the normal insurance policy into a paid up policy. Here the sum assured is limited to the paid-up value.

Surrender Value

Definition: The amount payable by the Insurer, if the policy holder discontinues the premium payments, before the Policy Term, and asking for a settlement.
Description: Only Paid Up policies are eligible for surrender. Usually the guaranteed surrender value payable after 3 years will be 30% of the total premiums paid, even though the ratio increases as the number of years increases.

Why They Lost Money? – 3 Possible Reasons

Let us find out reasons for those people to lose money by an LIC policy, case by case.

Reason 1 – Missed the minimum premium requirements

After understanding the above discussed terminologies, it is apparent that, other than death of the policy holder, either natural or accidental, the life insurance corporation is NOT liable to pay anything; until the policy term completes. The only other payable condition could be, the policy holder is approaching LIC for a Guaranteed Surrender Value.

Scenario 1

the person concerned in our case

  1. Is alive
  2. Paid premiums for less than 3 years
  3. Grace Period is over

Result : the corporation is not liable to pay anything back.

Scenario 2

The person concerned

  1. Is alive
  2. paid premiums for less than 3 years
  3. Grace Period is NOT over

Result : The policy is in lapsed state. The policy holder can revive the plan by paying all the due premiums till date; he/she may also need to undergo medical screening, if asked by the corporation.

If the policy holder is not ready to do so, scenario 1 will result.

Scenario 3

The person concerned

  1. Is alive
  2. Paid premiums for minimum 3 years
  3. Surrendered the policy

Result : Policy is treated as terminated and Paid Up Sum Assured along with bonuses if any shall be paid by LIC.

Reason 2 – Never bothered

Many a times, we can see people lethargic and careless about their life. LIC investments are also no exception.

A recent news update published in reliable sources says – as on March 31, 2018, a total sum of Rs 10,509 crore is lying with LIC as unclaimed. You can
read more here.

If the person in our case is feeling he/she has claimable amount with LIC, they could have done any of these.

Solution 1 : go online

Visit this Unclaimed and Outstanding amounts to Policyholders page provided by life insurance corporation of India in its web site. Please enter the KYC details and claim your money.

Solution 2 : go offline

Pay a visit to your nearby LIC branch and investigate what can be done. Persons there will be ready to help you.

That said, if we are not bothered about our money, why should LIC bother.

Reason 3 – Introduced by parents

In many a case it is parents who starts the policy on their children’s behalf, believing their son/daughter would continue once they starts earning. As we can observe, parents might have started the plan for a meager premium of rupees 400 for 6 months (half yearly) or so. Most of the cases, they will never continue the policy for xyz reasons or they would try to surrender the policy. They might be successful in convincing their parents why they did so, but in reality they will lose for sure.

Analyse the issue & Realize the truth

In my opinion, if you come across any such person, who claim to have lost money, analyse their points thoroughly; then You will realize, they lost because of reluctance, inability & lack of enthusiasm – to reach their financial goals. All these factors in turn took the shape of LIC is bitter story!

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