5 Key Lessons For Investors From The Impending LIC Jeevan Saral Fiasco
The dynamics of retirement have undergone drastic changes in the past three decades, with the joint family system breaking down, people living longer, and retiring from their corporate jobs earlier
LIC's "Jeevan Saral" is a well-documented time bomb that's all set to detonate soon. Ironically named "saral" (simple), the heavily sold and now discontinued traditional plan is estimated to return only between 85% and 40% of the total premiums paid by hapless policyholders when it begins to mature in tranches starting this year!
Ditch the blind faith in all things government
In our country, we tend to view government led investments as infallible. However, this would be an incorrect assumption. Government bonds can default, G-Sec mutual funds can take a hit if yields rise, NPS funds can underperform and yes - LIC can mis-sell its products. Lesson number one would be to view all investment products through the lens of rationality and inquisitiveness, without jumping in with both feet simply because it is promoted by a government or semi-government institution.
Give traditional plans the wide berth
I've said it a million times and I'll say it again - nothing good can come of buying a so called 'traditional' plan or 'non-linked' plan. While Jeevan Saral is, admittedly, an extreme example of wealth erosion from traditional life insurance plans, the fact is that these policies tend to collectively be opaque, low yielding, illiquid and hard to decipher. I've probably not come across a single policyholder who fully and clearly understands the nature and benefits of traditional plans that they hold. Give them a wide, wide berth and save yourself the heartache.
Acquaint yourself with insurance lingo
Most LIC plans (and other traditional plans offered by insurers) tend to have lengthy, verbose explanations of their policies on their websites. Most of these explanations are between 2,500 and 3,000 words long, without the tables! Hidden within these veritable oceans of fine print, are clauses and terms that would keep any rational investor at bay, if read and understood properly. Jeevan Saral, for instance, distinguished between "sum assured" and "sum assured on death", with the former being a fraction of the latter! Most unassuming policy buyers would be expecting the latter number upon maturity and will be dealt a rude shock when a much smaller amount (the former) is credited into their accounts.
When it comes to investments - keep it simple
Simplicity is the key to investing success. Good investing isn't rocket science or brain surgery - and if the offer document of a proposed investment looks more like a manual on "how to fly an airplane", you'd be doing yourself a huge favour by not taking it on. Segregate your protection needs from your investment needs by purchasing term insurance and adequate medical coverage and coupling them with low cost investments such as Mutual Funds, Direct Equities (for the long term), Bonds and NPS. Don't get stuck into financial instruments that aim to solve multiple problems at once - they may just end up creating problems for you that don't presently exist!
Quit being a conformist
OK, so your friend/ neighbour/ father/ grandfather bought LIC policies and retired comfortably off them. But that doesn't necessarily mean that you should do the same. The dynamics of retirement have undergone drastic changes in the past three decades, with the joint family system breaking down, people living longer, and retiring from their corporate jobs earlier. Today, one needs to go back to the drawing board and evaluate their retirement planning needs with fresh eyes, and be prepared to take on a lot more risk by investing into market linked instruments if they want to accumulate an amount that's even remotely close to their ideal target corpuses! So quit being a conformist and evaluate your own needs independently.