Comparison between New Jeevan Anand and Bank's Recurring Deposit (RD)
Jeevan Anand of LIC is most sold whole life endowment plan which provides risk cover and I would say good return on survival. I have been encountered various queries related return or maturity of this plan and some queries simply asked for comparison between Jeevan Anand and pure investment. One of the queries is given below.
"Dear Sir, I have JEEVAN ANAND (WITH PROFITS) WITH ACCIDENT BENEFITS (149) POLICY. I purchased the same on 15 Jan 2010. Sum assured is Rs. 200000 and annual premium is 10922. I feel I should not continue this policy and the premium amount should be invested in some other investment option for greater returns. Is it ok if I surrender this policy? Or stop paying premium. I have already a pure term life plan by ICICI. Would I be able to get full amount of premium I paid in years? Please suggest!!"
Above question is very genuine and worth a discussion on it. Though it is not wise to compare a Life Insurance plan with a pure investment plans like Recurring Deposit, Fixed Deposit, Mutual funds and other plans because objective of both are completely different, but with reference to above query, I have tried to compare above Jeevan Anand case with a Bank’s Recurring Deposit with some assumptions. Two assumptions, tax rebate on premium paid under 80C @10% and tax free maturity under 10(10D) @20% have been taken.
First let’s list out various details including maturity associated with Jeevan Anand as follows.
Sum assured: 2,00,000 (A) Policy term: 21 years (B) Annual Premium: 10,922 (C ) Total Premium Paid (B x C): 2,29,362 (D) Tax saved on total premium paid (10% of D): 22,936 (E) Approximate Maturity: 4,35,800 (F), Click here to Know more Now for comparison, let’s assume that we are going for a Recurring Deposit (RD) for 21 years with annual deposit equal to your premium i.e. 10,922 which is yielding at an interest rate of 8.00% per annum. Calculating maturity of above RD according compound interest it comes as under. The maturity amount of RD: 5,94,776 (G ) Click here to Know more Total Interest earned (G-D): 5,94,776-2,29,362=3,65,414 (H) Income Tax on earned interest (20% of H): 73,083 (I) Effective Difference (G-F-E-I): 5,94,776 - 4,35,800 - 22,936 - 73,083= 62,957 So, as per above comparison we have come to know that Bank’s RD is having edge over Jeevan Anand by 62,957 in our case. But Jeevan Anand provides life cover even after maturity i.e. in case of death nominee will receive 2,00,000. If we surrender the policy after maturity an approximately 60,000 rupees will be available which takes down the difference to 2,957. This difference is not significant because in case of any unfortunate event nominee will be compensated by minimum of Rs. 2,00,000 even a single premium has been paid. So it may be concluded that with above assumption buying Jeevan Anand is a justified decision.