LIC Bima Bachat policy from LIC is a single premium money back plan. In case you are unaware of the different types of life insurance policies, I recommend you hop over to read that first.
A money back plan is meant to return you an amount of money after every certain number of years.
So can a single premium money back plan make sense in your overall financial planning strategy ? Or is it just another policy which does not make sense to get into ? Let us check out LIC Bima Bachat policy review below.
What are the features of LIC Bima Bachat plan ?
It is packaged very neatly I must say.
All you need to do is pay just once, that is what a single premium policy is, isn’t it. And after every 3 years, LIC will pay you back 15% of the sum assured. The single premium that you paid is also returned to you on maturity, along with bonus if applicable.
There are 3 policy tenures possible – 9 years, 12 years and 15 years.
For a 9 year plan, 15% of sum assured is paid after the 3rd and 6th year, that makes 30% of sum assured as payable.
In the 12 year plan, 15% of sum assured is paid after the 3rd, 6th and 9th year, that makes 45% of sum assured as payable.
So for a 15 year plan, 15% of sum assured is paid after the 3rd,6th, 9th and 12th year, that makes 60% of sum assured as payable.
In case of death, the entire sum assured and bonus is received by the nominee.
There are no riders on this plan.
Returns
To be safe, let us compare the returns with the illustration at the LIC website.
Suppose, a 35 year old taken a policy for 9 years with a sum assured of Rs 1 lakh – his premium will be Rs 67,058/-. Now as mentioned above, he will get 15% of the sum assured (15% * 1,00,000 = 15,000) at the end of the 3rd and 6th year. And the single premium that he paid of Rs 67,058/- is paid back at the end of the term. The same is illustrated below.
| 9 year plan – Survival Benefits | |||
| Year | OutFlows | Inflows | Total |
| 1 | -67058 | -67058 | |
| 2 | 0 | 0 | |
| 3 | 0 | 15000 | 15000 |
| 4 | 0 | 0 | |
| 5 | 0 | 0 | |
| 6 | 0 | 15000 | 15000 |
| 7 | 0 | 0 | |
| 8 | 0 | 0 | |
| 9 | 0 | 67058 | 67058 |
| IRR | 5.89% | ||
As you can see, the internal rate of return (IRR), is 5.89% – this is what the policy will return in case of survival. Now this is with no bonus. The LIC website shows a bonus of Rs 24,300/-, if that is taken into consideration then the returns come to 9.29%.
So, if you run through the calculations for a sum assured of Rs 1 lakh with and without bonus (bonus information is at LIC website), here is what the returns will look like –
| SA = 1 lakh, 35 year old male | |||
| Years | Premium | Returns without bonus | Returns with bonus |
| 9 yrs | 67,058 | 5.89% | 9.29% |
| 12 yrs | 72,145 | 5.97% | 9.27% |
| 15 yrs | 75,195 | 5.99% | 9.14% |
As you can see, the returns are heavily dependent on a fat bonus otherwise the returns fails to impress.
Also, what is killing is that for a sum assured of Rs 1 lakh, you are having to cough up a massive Rs 67,000 minimum in the form of premiums. In today’s world, you could land a Rs 1 crore term insurance for a 35 year old male for 9 years for Rs 12 ,000 approximately ! What waste so much premium at a product that gives so meager returns ?
Should you buy LIC Bima Bachat ?
I cannot think of a reason why this policy should be bought by anyone.
While it is true that the premiums paid are exempted from income tax under Section 80 C and the maturity proceeds are exempted from tax under Section 10 (10D), that better not be a reason for you to buy this. If that is the case, then there is something grossly wrong with the way you are conducting yourself financially.
Many investors get drawn to the 9% interest on which a loan is given on this policy and also on the rebate available on the premiums in case it is huge – 5% rebate for premiums between Rs 50,000 to Rs 1 lakh; 7% rebate for premiums between Rs 1 lakh and Rs 2 lakhs and 8% for premiums above Rs 2 lakhs.
Again, that better not be a reason as well.
In fact, can you suggest why one should buy LIC bima bachat at all ?
@Radhey,
Good explanation, 67k premium, that’s way too high. I was never attracted to single premium plans. Term plans are simply the best.
Hi Radhey, how have you calculated 5.89% in the above table? Are the values in total column correct? Sorry I am unable to understand the calculation. Could you please elaborate a little more?
@Vivek K, The claculation is based on IRR.
Take another example I found somewhere and do it yourself in excel – As an example – I paid Rs 18,572 every year on a moneyback insurance policy bought 20 years back. Every fifth year, I received Rs 40,000 back and Rs 4.5 lakh on maturity. What was my rate of return?
The internal rate of return (IRR) has to be calculated here. It is the interest rate accrued on an investment that has outflows and inflows at the same regular periods.
In the excel page type Rs 18,572 as a negative figure (-18572), as it is an outflow, in the first cell. Paste the same figure till the twentieth cell. Then, as every fifth year has an inflow of Rs 40,000, type in Rs 21,428 (40,000-18,572) in every fifth cell. In the twentieth cell, type in –18572. In the twenty first cell, type in Rs 4,50,000, which is the maturity value of the policy.
Then click on the cell below it and type: = IRR(A1:A21) and hit enter.
5.28% will show in the cell. This is your internal rate of return.
IRR is also used for calculating returns on insurance endowment policies.
@Radhey Sharma, Thanks Radhey for the elaboration, I was able to do the calculation myself and understood the concept of IRR.
But the agents explain it in a different way. Let’s take the same example what you have taken in your article. You pay 67058 and get 97058 at the end of 9 years.
Total returns = 30000 [97058 – 67058]
%age of returns = 44% [using simple interest formula]
Agent: “Sir no product in market can give you guaranteed returns of 44% at the end of 9 years. Moreover, you are getting your profit by the end of 6 years and company is giving you insurance as well.” Man! Even I am tempted with this line now. 😀
The customers would be drooling at 44% returns and agents won’t let them divert towards IRR.
Hope people read this article and focus on IRR, which gives a true picture.
@Vivek K, Yes you get it now, great stuff !!!
@Vivek K, Exactly.
I have similar question like Vivek, couldn’t understand calculation.
By seeing the % return (without bonus) it seems like only money back policy, your money will be back to you after few years ;). Tax saving part is attracting many smart people who are not so good at financial planning. People will say let’s save tax and so companies are able to bring this kind of product to market.
@Chirag, I will do an article on this and upload the excel sheet as well.
@Radhey Sharma, Got it, got it Sir :). You have explained nicely on Vivek’s comment.
You are so dynamic and commited Radhey, you are FP by passion and profession both. I like it really. Always available here any time and keep doing articles on our demand (even without missing any single comment). We are also giving you lot of work :). I am waiting for your article on debt fund. I did identified funds, still I feel good when I see the list from you with your comments on it, it’s like getting certified.
@Chirag, Need more time on this.
@Radhey Sharma, No hurry, I am here only :).
@Radhey Sharma, Hi Radhey, Thanks for your explanation. Have few queries. Is the money back amount of 15% of SA also tax exempted or only the maturity amount is exempted under 10(10D)? I have read that bonus or LA is close to Rs.35 per thousand while the bonus amount stated above is Rs. 24300/- which works out to Rs. 27/1000. Does the bonus amount for 15 yrs term higher @ 35 per thousand? Even if the plan gives close to 8-8.5% return after bonus I still feel it should be good bet for persons 30% tax bracket better than an FD where the return are taxable ( 9.5% interest yielding close to 7 % only post tax) & the interest rate may not remain high@ 9.5% for next 15 yrs. Please provide your comments.
@MARIGERI,
Even the 15% is tax exempt.
The bonus is something which LIC will decide and it does not depend on higher SA, the same bonus is given out to everyone.
I have used LIC’s own bonus figures which I think ae at 6% returns approx. Check LIC website.
Returns canot be your only parameters to compare two products.
If you have locked in a life insurance policy, then you need to treat it as a long term investment. An FD usually is never long term. So one needs ot choose a product after deciding for what goal that is meant for.
Also note that the policy is not very liquid while an FD relatively is. So that becomes another parameter.
Is this clear enough ?
Hi Radhey,
I must admit it really speaks what I feel about such plans. Even though it comes in another wrapper of a single premium with a bonus, but in essence it is an Endownment plan. And any Endownment plan can not truely serve the requirements of an Insurance as the Sum Assured / Premium ratio is horribly low.
I also wrote a similar article harping upon the fact that Endownment plan is a strict no no! Term Insurance is the way to go. Please let me know your views on http://insight.banyanfa.com/?p=288.
regards
BFA
hi,
can u comapre this product with ppf….i think this product makes more sense compared to ppf…
@Tejas, Why do you say that Tejas ?
@Tejas, I think you are trying to compare apples with oranges Tejas. There is no match between a LIC policy and PPF, they are different instruments for different purpose.
Hi Mr Sharma,
Are you sure that the maturity benefits from LIC Bima Bachat are not taxable under section 10(10D) of the IT Act? or for that matter the 15% return after 3 and 6 years for a 9 year policy.
These are the prvisions of the section
As per Section 10(10D) of the Income Tax Act, 1961, any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy is exempt from tax. However, this rule does not apply to following amounts:
1) sum received under Section 80DD(3), or
2) any sum received under a Keyman Insurance Policy, or
3) any sum received other than as death benefit under an insurance policy which has been issued on or after April 1, 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the Actual Capital Sum Assured.
I think Bima Bachat falls under point 3. What do you think?
@Praneet Bajpaie, I think this is an excellent question.
Irrespective of the above, I know for sure that the death benefit is tax exempt.
Its the maturity amount that is now in question. I think you might be right but I will check on this again. In a nutshell, if the premium is less than 20% of SA, then only the maturity amount is non taxable otherwise it is taxable.
I will dig deeper and confirm.
Thanks for such an intelligent question Praneet.
@Radhey Sharma,
Thank you. Yes I have read on other sites too that maturity benefit is tax exempt, even on the India Infoline website but it seems to be in conflict with the above provisions.
http://www.indiainfoline.com/PersonalFinance/Insurance/Life-Insurance-Corporation-of-India/LIC-Bima-Bachat/93860613/41023675
@Praneet Bajpaie, I have re verified this. This indeed falls under the third clause you mentioned Praneet – “3) any sum received other than as death benefit under an insurance policy which has been issued on or after April 1, 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the Actual Capital Sum Assured.”
So apart from death benefit, all maturity payouts from from LIC Bima Bachat are taxable.
Thanks for such a useful contribution.
Thus you have to factor the tax impact on the IRR ( depends on the slab). Why would LIC make such a product with returns taxable when one could go in for an FD with higher interest?
Do the customers buying this know of the tax impact?
Do the agents selling this mentioning it?
even the LIC website is mysteriously mute on such an important dat
@Ramana, Very important questions you ask Ramana.
I don’t think customers factor in the tax angle for such investments.
Nor do they know that FDs can return higher.
Agents wont mention that as if they do, no one will buy.
So yeah, this is misselling !!
hats off to praneet!!
Hi,
I am planning to purchase this policy for my Aunt who is 64 years old. There is no medical checkup in this. Could you advise if this is the right policy i can take for my aunt or are there any other options?
What is the intent of taking this policy for your aunt ?
@Sharan,
Does your aunt have any dependents? Why do you want to purchase this policy for her at this age? Did you notice the higher premium and also its not a health plan.
LIC bima bachat is simply the best, if anyone want to understand about the plan tell me I will explain him/her. and one more thing you are buying insurance and not returns, still it is one of the best buy, and stop making such such remarks, for all you readers you r talking about F.D – for you kind information F.D are taxable and there is no insurance cover in F.D., My request is to those people who calculate IRR – What is IRR, eg : does mercedes car ever talk about milege, no never- same WAY THERE IS NO SUBSTITUTE FOR LIC
Hiren, check this – https://www.thewealthwisher.com/2012/06/11/why-life-insurance-is-not-an-investment/
Let me know what you think about this.
@Hiren,
You sound like an LIC agent, you are at the wrong place pal…
FYI, I had surrendered my endowment policies 5 years back and invested in MF via SIP. Till date i have earned over 12% returns. Now which of your LIC policies can give me that returns.
HI, I ALSO WANT TO INVEST IN LIC POLICY ( BIMA BHACHAT). CAN ANYONE TELL ME IS SAFE FOR FUTURE OR NOT ? I OPEN THIS FOR MY HUSBAND 36 YEARS OLD FOR 9YEAR TERM. SA RS. 20000/- ONLY PLEASE REPLY ME
It is safe but what is the purpose of investment ? If you read the article, you will realize you have the answer.
hi,
i am 34 years old . can you tell me which is the best lic policy i should take?which policy gives maximum returns?i can invest 10,000 per month or 10 lakhs if single premium.
or should i go for a pension plan which gives me pension every year from the age of 50yrs to 70 yrs? please guide me. thank you
What are you saving for ?
Why single premium ? Why pension plan ?
I recommend you read this first – https://www.thewealthwisher.com/2010/10/07/setting-financial-planning-goals-or-goal-based-investing/
@radhey. Thanks for your views… its really interesting.
Had a quick one –
If a person is in 30 % or 20% tax bracket, dont you think we need to take the taxx savings also into account ?
It will surely increase the IRR by some %.
Correct me if I wrong
Thanks.
hai ,
sir my father is no more he was died on 14 feb. 2013 . he buy the lic bima bachat last 2 year before in the retiere ment ,so how much return should we got from that police he was pay 52000 something like that . please giude properly
@Vikas,
Sad to hear about your father’s demise. Please get in touch with the agent who sold this policy, he will be in a better position to assist you. If you not visit the LIC branch where the policy was taken.
Sir,
I want to have a single premium plan of LIC for my mother. Se insists I should invest some money in LIC with her name. She is 70 yrs of ager and ready to put 80k+. If not Bima Bachat then what.
pls advice.
@Ricky,
Who advised you to invest in LIC. There are much better options to invest. As your mother is senior citizen you can invest in Post Office Senior citizen scheme or even Fixed deposits for that matter.
Hi dear Mr Radhey, I am sorry to say,the way you called a LIC Agent in a rough manner.Only thing is that they are not able to discuss the products with the investors.There only aim is to fill the form for LIC investment to earn their livlihood.Basically the Insurance has never been sold in this country in last 57 Yrs(Since the inception of LIC).I donopt believe in IRR.You have to calculate the reinvestment value of the Cash back received after regular intervals beside the Full sum aasured is intact.Moreover the Premium paid is also intact till maturity and will be paid with loyalty additions,which you have not considered.I calculated the returns of Bima Bachat in a different way and earning huge returns from this product for last 6 Yrs.You may discuss the same with me on my Phone No 0******* by making a miss call as I am never attending the calls and always calling back.Bima Bachat cant be replaced or negated.Thnx n regards.
@Virendra,
Why don’t you believe in IRR. Can you name any lic product whose returns have beaten debt funds?
1.are the investment in share market safe?
2. Is there any gaurantee of returns in Debt market?
3. Why is that no pension fund ready to give an assured return
even more than 3 percent?
with effect from 01/04/2012 if premium exceeds 10% of Sum assured it is not eligible for tax deduction U/s 80c and maturity value is taxable.
all this information is not updated here on your site
Hi There,
I am satish,i purchased this policy on the 01/01/2014 as i was misleaded by one of the LIC agent.he told us like this policy is good option for the incometax saving but now i realised that this policy is not good for the IT benifts.Now i want to cancel/transfer into another plan this policy and buy new one for the taxt benifits.Is there anyway that i can cancel this policy ?
I have a lic wealth plus policy , paid premiums 150000 (1.5 LAC) for 3 year premium term 2010, 2011 and 2012.Today I have been approached by my LIC agent to surrender the policy and go for jeevan bachat as wealth plus is not doing well. What shuld I do ? Please advise.
@Joyratan,
Looks like your agent made a good commission on the old plan. First find out the surrender value of your policy. Do not invest in any new policy with the agent. Instead opt for online term plan if your comfortable or buy term plan from LIC.
Kindly read articles here on term plans.
Nice , I could get some insight into these insurance plans after going thru various questions and answers..
I got BHIMABHACHAT last year . I am 58 years old . After going thru calcaulations ,I feel like surrendering . Should I wait 2 more years and surrender or surrender now .. Suggestion pl ?
Hello,
I have Bima Bachat with a single premium of 25000 and sum assured of 35000 maturing on November 2014. Please let me know the bonus I will be receiving.
Thanking you in advance,
Rajeev
I have
1) Jeevan Anand taken during 2010 for 23 years with an annual premium of 9409, sum assured 2 lakhs. I have paid 4 premiums. As per the LIC website Bonus credited is 28400.
2) Jeevan rekha for 20 years taken during 2004 with sum assured of 2 lakhs premium of 8108 and I have also received 20000 as survival benefit twice. Bonus shown in the LIC website is Rs. 80000.
Please let me know whether I should surrender these policy or make them paid up or continue paying premiums. What will be the return I will get in each case for both the policies.
Regards,
Rajeev
Looks like this guy, the wealth wisher is from a competitor company against l.i.c
If I pay 70000 for 1 lakh sum assured, I get
1) assured tax benefit of 21000(if I’m in 30% tax bracket)
2) 15000+15000=30000 for a nine year twrm policy
3) 1 lakh on maturity
Net net, I’m investing 49000 and getting 1,30,000
Now tell what ire I’m earning
Also the return for the risk is great
Pls dont mislead gullible people
he product is giving a return of 9.19% with the bonus, you yourself have illustrated it. Futher you are not counting the reinvestment return earned on 15000 recieved at the end of 3 yrs and 6yrs. If you think logically its a pathetic insurance product, but at the same time is one of the best tax saving products in the market which gives fixed returns to its investors. No other tax saving instrument is giving money back in 3yrs except ELSS, which has its own sets of risks and hence cannot be compared here.
Futher PPF gives a return of 8.5-8.75% a year, And Tax saver FD which have lock in for 5 years give return of 8.75-9.10% and it must be noted that tax saver FD are not TAX exempt on interest so a person in 30% tax bracket is actually earning 6.125%- 6.37% on their FD. So a person taking fixed income product for tax purpose is left hanging with just the 8.5% PPf of 9.12% bima bachat.
Also in this case Bima Bachat is a superior instrument as it gives not only higher return at the end of period, it has an earlier maturity, gives pay back at regular intervals and has a cover from day 1. (Although as i said its not a very satisfying insurance instrument as a whole) But is a great tax saver product.
For any queries,
Nilesh Motwani
Motwani & Motwani Tax Consultants & Financial Advisors
8080005091
Hi
Its quite shocking.
All Investors , please understand the product carefully. LIC has been awareded as world’s most trusted brand so many time.
Example for Bima Bachat
If a person aged about 28 invests Rs 77335 SA Rs 1 lac… Term 15 years, then yes he will get 20% of SA as a tax deduction, the reason behind the same is money back amount of another 80% is already tax free . Moreover person will get reinvestment benefit of these money back amount, loan facility as well with very good return as u have mentioned .
As a brand LIC has a very good trust. So please dont go carried away.
Don’t buy lic products as lic have started harassing customers.
Lic is the only company which is not providing copy of proposal forms along with policy documents and as such customers don’t know what have been written behind the back.
Also if customer complaints lic of change in agent due to defective service lick has no mechanism for the same and as such agents are not penalized and infact benefited at the cost of customers. This is mischief of lic for unfair practice. Recently in pension scheme when no insurance is provided signature is taken under section 45 of insurance just with a view to reject claim of the customer for the fault of agent.alsomas per irda guide lines lic has to reject forms which are not filled as per irda guidelines but inspite of that policies are issued for reasons best known.we in our family have more tahn25 lic policies but we had bad experience in 2010 which policy was revived after lots of hardships in 2012 and in 2014 bima bachat non medical policy was rejected after 2 years of proposal and after strongly contesting the same the branch manager theratened me and canceled my 6 policies of other branches just to defeat ends of justice for no fault of ours. Please note bima bachat is non medical policy and my policy was rejected for medial formalities even though it was in my favour. I have taken this challenge this is our last investment in Liz and I will teach lic a lesson. I know lic has very good team of lawyers and most cases are in their favor but they cannot fool public by canceling policies which offer only 1.3 times of risk of premium paid . This is injustice, arbitary . I will fight till end and even write to Narendra Modi as his photo is printed on lic pamphlets.
Hemal ganatra 9820163249
The site should not become an arena for campaigning and counter-campaigning. It should place the best of each scheme and leave the judgment to us. LIC commands the confidence of millions of investors for the security it offers. Any student of company law will know that Company FDs are not secure and Bank FDs , although secure . will give taxable returns. Surely a senior citizen or elderly person will want to put his or her retirement benefits into a scheme that offers both security and guaranteed growth. LIC, on top of this, offers Life Cover. There is no reason to discourage conservative investors from taking out a policy like Bima Bachat that offers all the above features.
hi this is my question to wealth wise acccording to new income tax rule 2 % tds will
be cut for survival benefit wich i recive every 3rd year above 1 lakh my question is related to new bima bachat
if the servival benifits r more then 1 lakh will it attract 2percent tds if yes then the servival benifit
will be tax free of will attracted any kind of tax.futher wen it get in to my account.
This is the worst plan ever. Neither money back nor maturity proceeds are exempted from tax under Section 10 (10D) as premium is much more than 20% of SA. Please be aware the IT laws and do not waste your money and suffer in future.
Hello Sir
I have taken New Bima Bachat policy of LIC. I invest 73269 Rupees for 9 years. I want to know that what will I get at the end of 9 years. Can you please explain this as i read in an article that it is premium + 30% of sum assured.
I want to clarify.
Sunita
Dear Sunita,
The benefits of Bima Bachat are:
Death Benefit – In case of death of the Life Insured, the nominee receives the entire Sum Assured + accrued Bonus
Survival Benefit – The Life Insured would receive the following Survival Benefit
· For a Policy Term of 9 years, 15% of Sum is payable at the end of 3 and 6 years, a total of 30% of Sum Assured is payable
· For a Policy Term of 12 years, 15% of Sum is payable at the end of 3, 6 and 9 years, a total of 45% of Sum Assured is payable
· For a Policy Term of 15 years, 15% of Sum is payable at the end of 3, 6, 9 and 12 years, a total of 60% of Sum Assured is payable
Maturity Benefit – When the policy matures, the entire single premium paid + Loyalty Additions are paid.
So, in total you get 30% of Sum Assured by the end of 6th Year and then, premium plus loyalty additions.
I would urge you to refrain from these policies and only go for Term Insurance. Even if you are taking them for Tax Benefits, there are a host of products which give better returns than these single premium policies.
Rgds
Madhupam
Hi Guys,
First of all good to see healthy conversation in the forum and many thanks to all those who posted their views on LIC.
Well I am a novice in LIC Policy and ended up with this Bima Bachat New Policy with SA of 60,000 against premium of 46173/- am just confused whether am eligible to have a tax benefit of 6000/- every year (till 9 years) or is that am eligible for Tax benefit of 6000/- for just the year I bought this policy on.
Apart from that could you suggest good tax saving options.
Hi Priyank,
It’s good you have realised that Bima Bachat was a mistake…assuming that you have bought the policy on or after 01.04.2012 you can avail 10% of sum assured benefit in the year of premium payment only. Since this was single premium policy, the benefit is only for the year of investment.
As I have said refrain from these kinds of policies, as they are just launched to take benefit of investors looking for making investments during tax planning season (Dec-March). Stick to a term insurance and mediclaim only for yourself.
You can look at PPF, NPS and ELSS MF Schemes for tax planning. But these should also be bought taking care of your overall asset allocation and risk bearing capacity.