Jitendra P.S.Solanki is a CFP and the Founder of JS Financial Advisors, based at Delhi/NCR. A management graduate from IIT Roorkee, he has 10 years of experience in financial services and started his Financial Planning Practice after becoming a CFP in 2010.Along with services on Financial Planning for masses, he has recently started services for families with special children’s in association with professionals from the specific field. Link to page with about special needs financial planning. He blogs at Your Pocket Money.
Plan for Disabled- Jeevan Adhaar & Jeevan Vishwas
In an episode of Satyamev Jayate, the plight of disabled in India was highlighted. It showed how these people are neglected in providing even the basic amenities. Although there are stories where one has fought to regain a common man life in India, the situation is highly critical. At present in India, there are approximately 4-8% of total population disabled as per a world bank report in 2007.
Worldwide life insurance companies also works for the benefit of special needs. Companies like Met Life USA have dedicated advisors who specialize in advising such families. However, India has to go very far. Nevertheless, LIC made a good start in 1996 by launching Jeevan Adhar –a life insurance plan for disabled dependents. Later the company came out with Jeevan Vishwas for the benefits of families not able to take advantage from Jeevan Aadhar. With an objective to provide regular income for meeting the disabled needs, these plans are the only options in our country today.
Here is a brief review of these two products:
Features of the Policies
|Type||Jeevan Adhar-Whole life||Jeevan Vishwas- Endowment Assurance|
|Who can take||Any person between 22-65 years of age||Any person between 20-65 years of age|
|SA||Min-50000, Max- No limit||Min-50000, Max-No limit|
|Premium paying term||10,15,20,25,30,35 or till the earlier death. Single premium option is also available||The term of the policy or single premium.|
|Guaranteed Additions||Rs 100 per thousand p.a. up to age 65 of life assured or death if earlier||Rs 60 per thousand p.a. for term of policy or death if earlier|
|Variable Additions||Terminal Additions are applicable if minimum 10 years premium have been paid. The rates depend on the future experience of the company||On the life assured surviving the date of maturity, or on earlierdeath after five years, Loyalty addition, if any may be paid at such rates and on
such terms as may be declared by the Corporation
|Benefits||On death of life assured 20% of NCO (SA+Guaranteed Bonus+Terminal Bonus if any) is paid as a lumpsum and rest 80% is utilized to pay annuity for 15 years and life thereafter, based on the age of handicapped dependent||On maturity of policy 20% of NCO (SA+Guaranteed Bonus+Terminal Bonus if any) is paid as a lump-sum and rest 80% is utilized to pay annuity as per the chosen options, based on the age of handicapped dependent|
|Supplementary/Extra Benefits||These are the optional benefits that can be added to the basic plan for extra protection/option. An additional premium is required to be paid for these benefits||These are the optional benefits that can be added to the basic plan for extra protection/option. An additional premium is required to be paid for these benefits|
|Surrender Value||No SV||Guaranteed or Special SV as applicable in endowment plans|
|To whom benefits Is payable||The benefit is payable to the nominee under the policy. The nominee can be either the handicapped dependent or any other person or trust. Proceeds from the policy has to be utilized for the benefit of the handicapped dependent||The benefit is payable to the nominee under the policy. The nominee can be either the handicapped dependent or any other person or trust. Proceeds from the policy has to be utilized for the benefit of the handicapped dependent|
|Income tax benefit||Under section 80DD of IT act||Under section 80C of IT act|
|Is disability certificate required||Yes-from govt. hospital||Only parents declaration is required|
|Special Provisions||In the event of the handicapped dependent predeceasing the life assured the contract ceases and the life assured will have the option of keeping the policy for a reduced paid up or receive refund of premiums paid||In the event of the handicapped dependent predeceasing the life assured the life assured will have the option to surrender the policy or keep it in force by regularly paying the premium and will have the option f taking the benefits in lump-sum or bifurcating it in 20-80 ratio as enumerated above|
Why Two Policies?
Initially LIC launched Jeevan Adhar policy but the rules were very stringent. The criteria for disability was under rule 11A of income tax rules, which eventually didn’t catered to the needs of handicapped dependent whose degree of handicap was lower. To bridge this gap the company introduced Jeevan Vishwas where the guardian can provide benefits to their handicapped dependent whose degree of disability does not meet the criteria in Jeevan Adhar.
There are many benefits introduced in Jeevan Vishwas in comparison to Jeevan Adhar. Firstly, it has a maturity value which assures the payment within a specified period. Secondly, annuity in Jeevan Vishwas has many options now. One can select on the basis of his/her dependent requirement. However, the guaranteed bonus in Jeevan Vishwas is much lower than Jeevan Adhar policy.
Jeevan Adhar has very high returns when you compare with any traditional plans. However, the age restriction of 65 years to receive guaranteed bonus lowers the return of the policy as you live beyond this term. In Jeevan Vishwas the bonus rates are higher than other traditional plans but lower than Jeevan Adhar.
Here is a snapshot of returns these two policies generate at different stages of life. (Based on Illustration as per LIC website)
This is an illustration of a parent of age 35 years having a special child of age 5 years. The premium is Rs 4095 for Rs 1 lakh SA and paid for 15 years.
|Age at Death||Total Premium Paid (Rs)||Guaranteed Additions (Rs)||Variable Additions (Rs)||IRR|
This is an illustration of a parent of age 35 years having a special child of age 5 years. The premium is Rs 4008 for Rs 1 lakh SA and paid for the term of policy or earlier death.
|Ageat Death/Maturity||Total Premium Paid (Rs)||Guaranteed Additions (Rs)||Variable Additions (Rs)||IRR|
There are two major drawbacks in these policies:
- Bonus till 65: Jeevan Adhar is a whole life policy and so there is no maturity. The proceeds go to the beneficiary only after the death of the policyholder. There is always a high probability that you may outlive the term of the bonus declaration.
- Annuity: The benefit in both the policy is partly in lump-sum and majorly as annuity. In India the annuity rates has been very low and not inflation indexed. A fixed annuity is a deterrent to the beneficiary since the expenses grows every year. Thus, although annuity is paid for the life time the money received may fall short in the future.
Should Parents of Disabled Dependent Consider
The risk of dying too early is always there but not certain. However, families with disabled dependents look products which can give fixed income to meet the regular needs in their absence. The product suits in the requirement but cannot be entirely relied upon. Combined with a term insurance it can work for the objective since it guarantees a fixed income to the beneficiary.