Women’s Insurance

This post was prompted by my better half. She was going through an issue of Vanitha (a leading Malayalam fortnightly for women) and it carried an article on women centric financial products – savings accounts, insurance schemes, etc. LIC’s Jeevan Bharathi caught her attention - insurance schemes with money back options looks really impressive. The following tries to decode a typical women’s scheme - Jeevan Bharathi.

The Plan

Jeevan Bharathi is a plan specifically for women. It provides life insurance and periodic money back. To understand the plan, let us look at the illustration provided in the insurer’s website.

Age (Yrs.) : 35

Term (Yrs.) : 20

Sum Assured (Rs.) : 100000

Annual Premium (Rs.): 6345

Benefits

The maturity value of the plan (if the insured survives the life term) assuming a rate of return of 10% is Rs.2,00,000. (Rs.20,000 is paid out at the end of 5th, 10th and 15th year; and Rs.1,40,000 is paid out at the end of 20th year)

In the unfortunate event of death of the insured, the amount payable to the dependent is the sum of guaranteed and variable benefits. For example, if the death occurs at the 15th year, the payable amount will be Rs.1,75,000 (Guaranteed: Rs.1,00,000 + Variable: Rs.75,000; assuming a rate of return of 10% again).

Analysis

Before we get into the actual number crunching, a premium of over 6000 rupees is mighty high for a paltry sum assured for Rs.1,00,000. But the bait of getting 20 grand every 5 years and the big catch of almost a lakh and half at the end of the term, I have to say, is really tempting at first look. If we combine the perseverance of our friendly neighborhood insurance agent with the last minute rush for tax saving, the possibility of one opting for this scheme has to be high. But let’s try to understand this plan better.

But before that why would my wife want this insurance plan for? There are three basic objectives:

1. Life cover
2. Returns
3. Tax Saving

My wife also wants the plan to be simple and easy to understand. Let us try an alternate way for achieving the above objectives, at the same time keeping her annual outgo same as Rs.6,345.

For insurance, let us consider Level Term Policy by Max New York Life. For a 35 year old female opting for a sum assured of Rs.2,50,000 and premium paying term of 20 years, the annual premium is Rs.1,040. (This is the lowest sum assured quote that I could manage from the internet!).

For investment let us consider a Public Provident Fund (PPF) account giving an annual return of 8%. Investment per year is Rs.5,305 (so that the total outlay along with the Level Term Policy remains at Rs.6,345) and we assume that the rate of return remains constant (average of 8%) throughout 20 years.

The maturity value of the plan assuming a rate of return of 8% is Rs.1,86,180. (Rs.20,000 is paid out at the end of 5th, 10th and 15th year; and Rs.1,26,180 is paid out at the end of 20th year)

In the unfortunate event of death of the insured, the amount available to the dependent is sum assured of the Level Term Policy plus the amount available in PPF. For example, if the death occurs at the 15th year, the payable amount will be Rs.3,33,000 (Level Term Policy: Rs.2,50,000 + PPF: Rs.83,000; assuming a rate of return of 8%).

Click here for an excel sheet with the above calculations.

Conclusion

The maturity value for the Term Plan + PPF route is almost equal to that of Jeevan Bharathi. Death benefit for the Term Plan + PPF route is almost double that of Jeevan Bharathi. Tax benefits are applicable for the entire premium amount in both the cases. As an added benefit, the return from the plan is more or less guaranteed (and please notice that we have compared 8% guaranteed returns from PPF against 10% non-guaranteed returns from Jeevan Bharathi). If instead of PPF, my wife opts for a good tax saving mutual fund, and considering a long term investment window of 20 years, expecting average annual returns in excess of 10 – 12 % would be fair. (for a 10% return, the difference in maturity value would be Rs.26,598)

So I would put Jeevan Bharathi as an expensive insurance/ investment product. The cost outweigh the benefits in a BIG way. Your comments are most welcome.

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are  requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.