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Quick Take: LIC Jeevan Shiromani

HNI's should think carefully before they decide to invest into this plan. From a Financial Planning standpoint, it's far more sensible to take up standalone term insurance and critical illness coverages, and divert the remainder of your funds to Mutual Funds via the SIP route

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If anecdotal evidence is to be believed, LIC's Jeevan Shiromani ("Superb Jewel") has successfully piqued the interest of many investors. The plan, launched last month, is exclusively aimed at High Net Worth investors; given that it has a fairly steep minimum BSA (Basic Sum Assured) of Rs. 1 Crore, implying that your minimum entry ticket to this policy would be priced at Rs. 7 lakhs per annum or more, depending upon your age.

Like most other traditional Life Insurance plans, Jeevan Shiromani isn't easy to comprehend. The 20-page brochure on the state-owned life insurer's website is obfuscated with enough tables and jargon to make the average investor's head spin. This makes a go/no-go decision tough. Let's try to dissect the basic elements of the plan.

The basic structure of Jeevan Shiromani is as follow: you pay a fixed annual premium for a period of 14, 16, 18 or 20 years, and receive two interim pay-outs 2 years prior and 4 years prior to the date of your last premium (for instance, for a 1 Crore BSA, you'll receive a pay-out of 30 Lakhs in the 10th and 12th policy year, for the 14-year variant). Note that your Sum Assured on maturity at end of the policy term would NOT amount to the BSA, but rather - a percentage of the BSA ranging from 10% to 40% of it (for the 14-year variant, this would amount to 30% or Rs. 30 Lakhs, for the 20-year variant it would be a mere 10 Lakhs). Guaranteed additions start accruing from your 1st policy year onwards (5% of the BSA for the first 5 years, and 5.5% of the BSA for the rest of the policy). This accrued sum is paid out at maturity as well.

You also receive a garden variety critical illness cover for a Sum Insured value of 10% of the BSA (for example, 10 Lakhs in case of 1 Crore BSA). This amount would be payable if and when you're diagnosed with any of the conditions stipulated in the brochure here - nothing beyond the realm of the ordinary. Your nominee will receive a lump sum amount in case of your death, which will be at least 1.25 times your BSA - and will go up as your plan progresses and guaranteed bonuses accrue. The annual premiums that you need to shell out in exchange for the above stated benefits would range from roughly 7 lakhs to 11 Lakhs, depending upon the variant chosen, and your age.

As a risk transfer tool, the plan isn't much to write home about - with a pure term plan, you'll be able to achieve the same life cover with Rs. 15,000 to Rs. 30,000 per annum, depending upon your age. A Critical Illness cover of Rs. 10 Lakhs would likely set you back another Rs. 8,000 to Rs. 15,000 per annum. If you were to just buy these two products on a standalone basis, it would leave you with a bunch of cash leftover to invest - which brings us to our last point: how does Jeevan Shiromani fare as an 'investment'?

Put simply, the opacity of the way the 'returns' are illustrated may mislead investors into believing that this is a high return product - when it really isn't. Take the example of the 14-year variant, for a 40-year-old, and for a Rs. 1 Crore BSA. The investor would end up shelling out roughly 1.54 Crores over a 14-year period. In exchange, he would receive 30 Lakhs after 10 years, 30 Lakhs after 12 years, and another 30 Lakhs plus the accrued 74.5 Lakhs on maturity, plus 'loyalty additions'. Not considering the loyalty additions, this amounts to a total pay out of Rs. 1.74 Crores - just Rs. 20 Lakhs over what you've paid out of your pocket! Essentially, your 'returns' would hinge almost entirely on the discretionary loyalty addition. Even if this pay-out were to amount to a generous sum of Rs. 50 Lakhs or 50% of the BSA, the returns on your plan would actually barely topple the 5% per annum mark!

End Note
HNI's should think carefully before they decide to invest into this plan. From a Financial Planning standpoint, it's far more sensible to take up standalone term insurance and critical illness coverages, and divert the remainder of your funds to Mutual Funds via the SIP route.