Essentially, you need to pay a single premium that gives you a coverage which is equal to 5 times the premium and then at the end of 10 years which is the maturity period of the plan you get some returns which are broken down between guaranteed and fixed returns.
The benefit illustration page shows that for a 30 year old you can expect returns of a little under 7% which is a fairly decent return for something that’s covered under Section 80C and it is certainly better than the 5% odd that the LIC Bima Bachat plan’s benefits were showing up to be.
Bear in mind though that there are several tax saver fixed deposits that offer upwards of 9% interest guaranteed and these have a shorter lock in period of 5 years as well.
If you aren’t interested in tax savings or have exhausted the 80C limits then the tax free bonds that are out these days like the REC tax free bond give close to 8% and that’s better than this too.
There are two things I’m not considering here, the first thing is that LIC does provide an insurance cover which the others don’t and I’m not giving that much weight because you really should have a term plan that takes care of your insurance needs and buying these type of products to take care of insurance needs is not a good strategy as it leads to getting into products with sub optimal returns and then you aren’t getting a lot by way of insurance coverage either.
The second thing I’m ignoring is the variable returns, and the reason for that is the way LIC is investing in disinvestment programs and incurring losses on those investments – it doesn’t inspire much confidence that they will be able to give you much by way of anything over the guaranteed returns. In fact, Business Standard has got a great article today on how LIC has incurred massive losses on the disinvestment stocks it has bought since 2009 and how it has missed out on all IPOs that have turned profitable since that time.
In going through this product I think this is not as bad as some of the other insurance cum investment products that you come across but at the same time I don’t see any compelling reason to invest in this. Philosophically, I have a mindset of not mixing insurance and investment and my default case is to stay away from such products and there should be something really sweet on offer to change my default case.
Finally, Ranjan and Hemant have done good reviews with calculations on their blogs and those are good reads for anyone considering investing in this product too.