LIC Bima Bachat Review

by Manshu on October 25, 2011

in Insurance

LIC Bima Bachat is a single premium money back policy which gives you insurance cover as well as some returns on your money.

Now, don’t fool yourself and buy LIC Bima Bachat if you want it for the insurance. A 30 year old will have to pay Rs. 67,058 to get a cover of Rs. 1 lakh and that’s actually one of the better scenarios.

So, if you’re buying it – you’re buying it for the returns and the 80C exemptions that it gets you so let’s look at those factors.

LIC Bima Bachat Covered Under 80C

The premium paid under LIC Bima Bachat policy is covered under Section 80C and what that means is the premium you pay will reduce your taxable salary by that much, and that will then reduce your tax liability.

Since you pay the premium only once – the uncertainty caused by the Direct Tax Code implementation doesn’t affect this.

LIC Bima Bachat Premium and Benefits

The policy can be for 9, 12 or 15 years, and the way it is structured is that you pay the premium, and then they will return you 15% of the sum assured every third year, and then the initial premium at redemption.

So, for a 9 year term policy:

  • 3rd year  – 15%
  • 6th year – 15%
  • 9th year -  Premium

A 12 year policy:

  • 3rd year  – 15%
  • 6th year – 15%
  • 9th year – 15%
  • 12th year -  Premium

A 15 year old policy

  • 3rd year  – 15%
  • 6th year – 15%
  • 9th year – 15%
  • 12th year – 15%
  • 15th year -  Premium

They pay you some loyalty additions at the maturity as well, but there isn’t any documentation on what this addition could be. Based on what some agents have said – the loyalty addition could be around Rs. 35 per 1,000 premium paid, but there’s really no guarantee on what they might be.

The premium itself depends on the age and the term of the policy, and they give  you certain rebates in the premium as well.

This table lists down the rebate.

Less than Rs. 50,000 NIL
Rs. 50,000 and Less than Rs.1 lakh 5%
Rs. 1 lakh and Less than Rs.2 lakh 7%
Rs. 2 lakh and above 8%

Now, let’s look at the returns you can expect from this policy.

I created a simple spreadsheet to calculate the IRR of the three illustrations given in LIC’s website, and you can find that Google Spreadsheet here. You can edit this document as well so please be careful of what changes you make as it will affect everyone.

Now, let’s look at the details of the 3 maturities with the same kind of age and sum assured.

Policy Term 9 year 12 year 15 year
Premium 67058 72145 75195
Age 35 years 35 years 35 years
Sum Assured 100000 100000 100000

As you see the premium goes higher as you increase the maturity period, and the returns from all three of these policies are around the 5% mark if you don’t consider the loyalty additions.
Even if you do consider the loyalty additions of Rs. 30 or 35 per Rs. 1,000 premium paid – it’s not likely to make much difference in the returns.

As a point of reference there are quite a few tax saving fixed deposits that fetch you over 9% right now.

I’m not sure if the 15% they pay or the final payment is taxed  – so that’s one thing I still need to find out.

I see that they also offer you a loan at a rate of interest of 9%, so maybe that’s something that might be of interest as well.

This is all I wanted to cover in the LIC Bima Bachat policy review, and you can use the spreadsheet to calculate returns based on your age and premium.

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{ 13 comments… read them below or add one }

Tax Savings October 25, 2011 at 7:16 am

LIC advertise that ” Hum har kadam par aapke saath hain” but in reality one has to evaluate the quality of service they offer. There have been umpteen instances where the claims have been delayed and the beneficiary had to struggle to get his benefit. Customers have a perception that LIC is the very reliable and respond promptly; which is true to some extent. But a critical review of the actual service offered by the company is important before the purchase of any new policy.

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bemoneyaware October 25, 2011 at 10:13 am

I think LIC is justified in saying ” Hum har kadam par aapke saath hain” but they do not clarify why and till when? Maybe till you are paying the premium they are with you but then once the policy holder dies..saath tu chotega na :-)

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Manshu October 25, 2011 at 7:21 pm

haha

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Thankamani March 23, 2012 at 10:44 am

hahahahahah:):) well said

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nilesh February 19, 2013 at 6:04 pm

saath tu chotega na, par paisa to milega. private co jaisa nahi karenge LICwale.

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Vijay October 26, 2011 at 8:25 am

Manshu, Happy Diwali ! Just wanted to add that the returns & premium repaid from BIMA BACHAT are all tax free.

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Manshu October 26, 2011 at 6:56 pm

Very very very happy Diwali Vijay!

Maybe when you get some time later on when the festivities end, could you please leave a comment on where you found this info.

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Vijay November 5, 2011 at 10:37 pm

Please check http://www.indiainfoline.com and go to personal finance / insurance / lic / lic bima bachat.

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Vijay November 5, 2011 at 10:38 pm

Tried to post the exact link but the server wouldn’t accept!!!

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Praneet Bajpaie February 25, 2012 at 7:50 pm

Actually it is not. Forget about what India Infoline is saying and read the provisions of Section 10(10D) of the Income Tax Act. Single premium policies tend to have premiums much higher than 20% of the Sum Assured (67% to 74% in case of Bima Bachat), hence bonus received after 3 and 6 years (for a policy of 9 years) as well as maturity amount is taxable.

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som November 23, 2012 at 1:17 pm

LIC people always mislead people, even well educate, in case of tax rebates. Bima Bachat investment is not at all a tax saver. With poor returns, low ins. cover and taxable repayments, every thing misleading. LIC agents should be given knowledge of IT Act. Fooling of customers should be discontinued.

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hariprasad b April 18, 2012 at 5:34 pm

in bimabachat loan is generated on same day. in closed financial year i use this loan and invested at 12% monthly interest at co.op.bank on my grandfather name.every month ipay interest to lic.

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Hemal January 26, 2015 at 3:00 pm

Do not put money in lic. Recently my 13 Lakhs rupees with policy is cancelled.on 13 lakes risk covered in only approx 17.5 lakhs. This is just because one branch used my money for 2 years and I threatened him to go legally. Please note recently pension plan is introduced. When there is no life insurance I pension plans lic cannot take signatures on declaration under section 45 .plesase note such declaration is not important. 95 percent of the cases are in favor of lic whether it be irda consumer court or ombudsman. Lic says life insurance is required for protection of family .but if after putting hard earned money policies are cancelled then life itself is a risk. Also in my opinion they grab opportunities for the mistake sothat they can fulfill claims. Also there is no mechanism in lic wherein after giving complaints of agent action is taken or commsission is stopped I.short lid will support agent and not customer. In 2010 my 1 lake rupee was reduced to 12 rupees only. I was made to run from pillar to post and finally recovered 175000 .even after this I trusted lid and invested 13 to 24 lakhs but for hiding their own departments mistakes and revenge have wrongly suspended my risks.only 15 days free look period is given to clients after that you cannot do anything . On the other hand section 45 allows lic to cancel even after 2 years and recently law commission increased the same to 3 and 5 years. So my suggestion to every one is not to put money in life insurance unless there is balancing on both sides. I.e if 15 days free look period is given to clients the same should be applicable to insurance companies also and after that insurance companies cannot cancel policy for any reasons whatsoever. Also lic does not supply copy of proposal form along with policy. In short officers in my opinion have no mind in doing their work.also please do not be fooled by non medical plans .even if it is non medical do not take policy without doing a medical as it is in our Interest. Also do not write no if you are not aware always write I don’t no or I don’t remember. Also life insurance policies should not be allowed unless each and ever question is confirmed by a senior officer in his presence and written and or accepted in front of him . Further refer case of asha goel and asha garg.

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