‘Taxing’ season of the year has begun… so whats on offer in the market! We will try and understand the LIC product in the limelight – LIC’s Bima Bachat.
LIC’s Bima Bachat is a money back policy which claims to offer financial security and assurance to the policy holder and his family. It requires the policy holder to pay only one premium. The amount paid depends on the duration of the policy taken and life insurance is available till the date of maturity. To understand it better you must first know the definition of Money-back Policy. And here it is!
Money Back Policy
Unlike endowment plans, in money back policies, the policy holder gets periodic “survivance payments” during the term of the policy and a lumpsum amount on surviving its term. In the event of death during the term of the policy, the beneficiary gets the full sum assured, without any deductions for the amounts paid till date, and no further premiums are required to be paid.These type of policies are very popular, since they can be tailored to get large amounts at specific periods as per the needs of the policy holder. (Source: http://www.licindia.in/glossary.htm)
Min & Max Eligible Age: 15 to 66 years
Age at Maturity: 75 years
For 9 year term: Policy holder will receive 15% of Sum Assured (SA) at the end of every 3rd & 6th policy year.
For 12 year term: Policy holder will receive 15% of Sum Assured (SA) at the end of every 3rd, 6th & 9th policy year.
For 15 year term: Policy holder will receive 15% of Sum Assured (SA) at the end of every 3rd, 6th, 9th & 12th policy year.
Death Benefit: Irrespective of the amounts already paid the full Sum Assured is paid to the nominee.
Maturity Benefit: At the time of maturity, a single premium payment (excluding extra premium) is made along with loyalty additions, if any. There may be non-guaranteed benefits based on Projected Investment Rate of Return that LIC will be able to earn throughout the term of the policy generally illustrated at 6% or 10% p.a.
The loyalty addition is given upon the maturity of the policy, and not before. It’s a small percentage of the sum assured. Broadly speaking, loyalty addition is the difference between the performance, of the insurance company and the guaranteed additions. LICs may share its surplus after valuation with the policy holders, as LIC is a non-profit organization. (Source: http://www.licindia.in/glossary.htm)
Income tax exemption on Maturity/Death Claims proceeds under Section 10(10D):
Under the provisions of section 10(10D) of the Income-tax Act, 1961, Maturity/Death claims proceeds of life insurance policy, including the sum allocated by way of bonus on such policy, is exempted from income- tax.
Liquidity: Bima Bachat is the only money-back policy that offers a loan facility from the 1st year itself. The rate of interest for this will be determined from time to time by the corporation. Presently the rate of interest is 9% p.a. payable half-yearly.
Summary: Don’t fool yourself and buy LIC Bima Bachat if you want it for the life insurance. However considering the guaranteed nature of the product, tax saving features, liquidity and one-time investment perspective, Bima Bachat gets a stamp of approval from INtegra FinServe!
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