Good or Bad? A Detailed Review

LIC’s New Money Back Plan-20 years is a Par, Non-Linked, Life, Individual Savings plan. It offers an attractive combination of protection against death throughout the term of the plan along with the periodic payment on survival at specified durations during the term.

• The plan combines protection and savings
• Survival Benefits are paid at specific intervals during the policy term.
• An option to enhance coverage by adding rider benefits with an additional premium.
• Attractive rebates for higher sum assured amounts.
• Flexibility to receive the death benefit as a lump sum or in instalments, based on individual needs.
• Access to liquidity through a loan facility to address urgent financial requirements.

The death benefit payable in case of death of the Life Assured during the policy term provided the policy is in force shall be “Sum Assured on Death” along with vested Simple Reversionary Bonuses and Final Additional Bonus, if any.

Where “Sum Assured on Death” is defined as the higher of:

• 125% of the Basic Sum Assured or
• 7 times of annualized premium.
• This death benefit shall not be less than 105% of the total premiums paid up to the date of death

On Life Assured surviving to the end of the specified durations provided all due premiums have been paid, 20% of the Basic Sum Assured shall be payable at the end of each of the 5^th, 10^th & 15^th policy years.

On Life Assured surviving to the end of the LIC’s New Money Back Plan-20 years policy term, provided the policy is in force, “Sum Assured on Maturity” along with vested Simple Reversionary Bonuses and Final Additional Bonus, if any, shall be payable.

Where “Sum Assured on Maturity” is equal to 40% of the Basic Sum Assured.

Simple Reversionary Bonuses shall be declared annually at the end of each financial year. Once declared, they form part of the guaranteed benefits of the plan.

Final Additional Bonus may also be declared under the policy in the year when the policy results into a claim either by death or maturity at such rates and on such terms as may be declared by the Corporation.

Grace Period

A grace period of 30 days shall be allowed for payment of yearly, half-yearly or quarterly premiums and 15 days for monthly premiums from the date of the First unpaid premium.

Paid-up Policy

If less than one full year’s premiums have been paid and any subsequent premium is not duly paid, all the benefits under the policy shall cease after the expiry of the grace period from the date of the first unpaid premium and nothing shall be payable.

If at least one full year’s premium(s) has been paid and any subsequent premiums are not duly paid, on completion of the first policy year, the policy shall not be wholly void but shall continue as a paid-up policy till the end of the LIC’s New Money Back Plan-20 years policy term.

Revival

A lapsed policy can be revived within a period of 5 consecutive complete years from the date of the first unpaid premium but before the Date of Maturity

If the Policyholder is not satisfied with the “Terms and Conditions” of the policy, the policy may be returned to the Corporation within 30 days from the date of receipt of the electronic or physical mode of the Policy Document.

The LIC’s New Money Back Plan-20 years policy can be surrendered after completion of the first policy year provided one full year’s premium(s) has been paid.

However, the policy shall acquire Guaranteed Surrender Value on payment of at least two full years’ premiums and Special Surrender Value after completion of the first policy year provided one full year’s premium(s) has been paid.

On surrender of an in-force or paid-up policy, the Corporation shall pay the Surrender Value equal to the higher Guaranteed Surrender Value and Special Surrender Value.

• Rider options to enhance coverage.
• A Settlement Option to receive Maturity Benefits in instalments over a chosen period of 5, 10, or 15 years instead of a lump sum.
• Flexibility to receive the Death Benefit in instalments over 5, 10, or 15 years instead of a lump sum.
• Attractive rebates for higher sum assured amounts.
• Access to policy loans, with a maximum loan amount of up to 75% of the surrender value.

• The policy term and premium payment term lack flexibility.
• Survival Benefits may fall short of covering significant expenses.
• The plan offers low returns on investment.
• There is no option to defer or accumulate the Survival Benefits.

While the survival benefits under this plan are guaranteed, the maturity benefit depends on the bonuses, making it essential to estimate the potential returns. Let us analyse the plan’s returns to help make an informed decision.

Consider a 30-year-old male opting for a ₹5 Lakh Base Sum Assured (₹6.25 Lakh Death Benefit) under the LIC New Money Back Plan. The policy term is 20 years, with a premium-paying term of 15 years and an annual premium of ₹38,704.

Survival Benefits of ₹1 Lakh (20% of the Sum Assured) are paid three times during the LIC’s New Money Back Plan-20 years policy term. At maturity, the remaining 40% of the Sum Assured, along with bonuses (non-guaranteed), is paid.

Using illustrations based on two assumed rates of return—4% p.a. and 8% p.a.—we can evaluate the plan.

At 4% p.a.

• Final maturity amount: ₹2.70 Lakhs.
• IRR: -0.24% as per the LIC’s New Money Back Plan-20 years maturity calculator.
• This negative return means you would have earned better returns by parking your money in a savings account, which also offers liquidity.

At 8% p.a.

• Final maturity amount: ₹4.92 Lakhs.
• IRR: 3.52% as per the LIC’s New Money Back Plan-20 years maturity calculator.
• While better than the 4% scenario, this return is still lower than the inflation rate, reducing your purchasing power over time.

The returns from the LIC New Money Back Plan are significantly lower than what debt instruments like fixed deposits or bonds could offer. Given its low returns and lack of flexibility, this plan may not be the best financial choice for achieving your goals.

The LIC New Money Back Plan delivers poor investment returns and provides inadequate life coverage due to its combined insurance and investment structure.

A better approach is to separate life insurance and investments, which can lead to higher returns and greater flexibility. Let’s illustrate this with a scenario:

A pure term life insurance policy with a sum assured of ₹6.5 Lakhs costs ₹4,300 annually, with a 20-year term and a premium payment duration of 10 years.

This leaves ₹34,404 annually for 10 years available for investment. For this analysis, we assume the investment is made in an ELSS fund.

In the LIC plan, the premium is paid for 15 years. With the term plan, the premium is paid for 10 years, leaving the full ₹38,704 available for investment during the remaining 5 years.

To match the survival benefits of the LIC New Money Back Plan, equivalent amounts are withdrawn from the ELSS investment during the policy term.

At the end of 20 years, the remaining units in the ELSS are redeemed, with capital gains calculated only at final redemption, considering the LTCG exemption of up to ₹1.25 Lakhs per year.

The combined strategy of a term plan and ELSS investment yields an IRR of 10.47% (post-tax return). This significantly outperforms the LIC New Money Back Plan, offering higher returns and greater flexibility to withdraw funds as per your needs.

The lack of flexibility and low life coverage make the LIC New Money Back Plan a less appealing choice for achieving financial goals.

The LIC New Money Back Plan aims to provide regular liquidity to meet financial needs while offering life cover for your family.

However, the periodic survival benefits often misalign with actual requirements, leading to unnecessary spending or failure to provide meaningful support during financial emergencies.

This plan delivers below-average returns and offers inadequate insurance coverage, making it insufficient to address your family’s basic financial needs.

As a result, the LIC New Money Back Plan falls short in both insurance and investment aspects and it also has a high agent commission.

To build a solid financial foundation, it’s essential to assess your risk tolerance and financial goals. Based on these, create a diversified investment portfolio aligned with your investment horizon and risk profile.

Prioritize securing a pure-term life insurance policy to ensure adequate protection for your family. These policies offer affordable premiums and substantial coverage, serving as a reliable safety net.

Do Quora, Facebook, and Twitter have the final say when it comes to financial advice?

Avoid relying on money-back plans for goals requiring regular cash flow. Instead, for comprehensive financial planning, consult a Certified Financial Planner. They can help you choose investment products tailored to your unique goals and financial circumstances.