My answer is 98% YES with a 2% NO. The obvious reason behind is, all those who voice against LIC of India has only one point to make – LIC returns less. So if you want to benchmark India’s insurance behemoth, just on the grounds of returns, possibilities are there, you may end up with 2% less returns. But believe me Everything Has A Price.
The Pros and Cons of LIC investment
Now let us discuss about the advantages and disadvantages of investing in life insurance corporation’s endowment (savings) based insurance policies in detail. Let us begin with the negatives first.
The Cons of LIC investment
Here is 3 commonly spoken adversities to LIC of India’s investment based insurance policies are
1.Return On Investment (ROI) based on net money returns is less?
This is one of the major criticism, endowment based LIC policies face from critics. To understand the trustworthiness of this allegation, we need to understand the “Rule of 72” in detail and its significance in estimating the returns from a certain investment. With respect to this rule, if you look at the broad majority of all the savings avenues available in India today, the actual return on any investment, with a guaranteed level of growth, after paying income tax, is just 6% to 8% only. You can read our previous discussion on rule of 72 here.
The illusory truth effect is a psychological technique of making a lie seem true by saying it again and again. If you can not still believe follow this news from The Wired.
All I wanted to tell is, it is not LIC who pay you less returns, but you are forced to believe that.
2.LIC offers long term plans only?
This is another major complaint LIC faces. Mostly, from people below the age of 30. This is true. If you go through through the published plans, you can see the minimum tenure offered is 10-12 years and the maximum policy duration is 30-40 years. But why? there are two reasons for that.
Reason 1 – Life planning is not a short term process
Offered policies from LIC are life linked. Which means, products which grows and flourishes along with the policy holder. Any single policy is a relationship which is vital for every life scenario, whether it is children’s education needs or marriage fund creation for daughter or pension planning for our old age or estate creation for our future generation. It is obvious that a life fund must start its timeline in the present and fulfill its need at a future date.
That future date can not be just 2-3 years or even just 5 years far. Tell me a normal person who starts a marriage fund after his child reached 18 years. No responsible father will start saving for their children’s higher education after they have passed 12th. These scenarios reiterates the need for a long term investment solution.
Reason 2 – LIC can not guarantee returns for short term
The biggest lender from Life Insurance Corporation of India is Union Government and state governments for infrastructure projects and other development activities. LIC’s help is often sought after to revitalize PSUs. So is the case with Indian Railways. 2019 budget is expected to utilize 1.7 trillion for railways. So all the investments done by LIC is for long term, that too in guaranteed funds with sovereign guarantee. Since the investments are secure, the returns from those debt funds are also guaranteed for LIC. So is the case with the policy holder. We can assume a guaranteed level of growth for our investments, irrespective of the market conditions.
I hope you got the idea. LIC is for those who look at life from a long term perspective. So many possibilities like Recurring Deposit or Bank Fixed Deposits are there for mitigating short term saving goals. Please do not blame LIC.
3.No top ups to existing policy premiums
Quite often people ask me whether they can have some flexibility of premium payment. Their idea is, say for example, invest 1000 rupees this month. If by chance if they have excess money next month, will they be permitted to put 2000 instead of regular Rs.1000. The answer is “NO”. Why?
Insurance is a contract
Behind the scene, every insurance policy issued by LIC is an agreement between the corporation and the policy holder. The basic terms and condition being, LIC will safeguard the nominee with the Basic Sum Assured (+ bonuses + benefits) for the entire policy tenure; provided the policy holder paid all due premiums regularly. Since this contract is relevant only on the grounds of premium payment, there can not be varying premiums.
Yet the customer is free to purchase as many number of policies from LIC, based on the financial capability and health status. But not allowed to change the premium of a running insurance policy.
The Pros of LIC investment
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Insurance
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Accident Benefit
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Disability Benefit
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Loan facility
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A collateral security.
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Sovereign Guarantee
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Tax Free returns under 10(10(D))
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Tax exemptions under 80(C)
Nothing is perfect. Every thing has its share of advantages and disadvantages. So is investing in LIC plans. If we are approaching Life Insurance Corporation of India with a one word solution to all our financial anticipations, we may face dismay. So a more legitimate decision could be to keep a balance between LIC and other portfolios.
Life is a drama with No dress rehearsals
A wise man is the one who learns from the mistakes of others. Invest some time in thinking, it will bring good return. All those whom we see today as old and poor, had their opportunities.
We are all talking about riches! But the fundamental step to reach there is – savings. For this goal, we need to be backed by a trusted partner; who can help us to save regularly, ensure a decent growth to our savings and keep us feel safe about our hard earned money.
Your decision matters
Life Insurance Corporation of India (LIC) has a vast number of policies fitting every pocket.Contact us today or rather give us a call on 09543105531 to fix an appointment with our representative. We are happy to help you. Insure with LIC, ensure a bright future! Best of Luck.
A quick recap of topics discussed
So far we had discussed some of the most common misconceptions people have about investing in Life Insurance Corporation of India, largely known as LIC, offered insurance policies. If you landed here straight, please have patience to look at other common concerns people raise.
- Reason #1 “Term Insurance Plan vs LIC endowment policy : which is better? Myths and Facts You need to know”
- Reason #2 “I’m too young to start Pension planning?”
- Reason #3 “Do my family really need insurance?”
- Reason #4 “Will I Live Beyond 55?”
- Reason #5 “Old age is manageable without pension”
- Reason #6 “LIC offers Guaranteed TAX Free Returns, is it worth considering?”
- Reason #7 “Can I buy LIC policy online without agents?”
- Reason #8 “Will LIC close down in near future?”
- Reason #9 “My Friend/Relative/Friend’s Father Lost Money in LIC”
- Reason #10 “Investments – I hate advises; I need more time to think”