Is this Diamond worth your money?
Life Insurance Corporation of India (LIC) is aggressively marketing its insurance policy, LIC Bima Diamond Plan, as a ‘Diamond for Life’. Let’s see if this ‘Diamond’ is worth your money?
LIC Bima Diamond Plan is a typical non-linked, with-profit, limited premium payment money-back life insurance plan. Non-linked means it is not ULIP or your money will not be linked to equity market movements. With-profit means, it is like investment product where you get returns on your investment based on the product feature. Money back means at a different interval of the policy term, you will receive some money from this policy.
Highlights of the policy
- It is a fixed tenure insurance policy. There are three tenure options – 16 years, 20 years and 24 years.
- The premium paying term is less than the tenure of the policy e. g. for a 16-year policy you have to pay only for 12 years.Money-Back (Survival Benefits)every 4th year.
- The premium rate of LIC Bima Diamond is one of the highest.
- It gives life cover even aftermaturity of the policy. It gives extra protection up to half of the policy tenure additionally. For example, for a 16-year policy, you would get life cover till 24 years. However, during the period of this extended protection, the sum assured would be half of the original amount.
- It gives life cover even after you stop paying the premium (called Auto Cover). This relaxation is up to two years.
- Itvdoes not give annual reversionary bonus. You would get loyalty addition after a certain tenure.
- This plan hasa loan facility.
- You can take accident & disability rider and new Term Assurance Rider.
- The maximum sum assured is Rs 5 lakhs, minimum 1 Lakh and entry age is minimum 14 years completed.
Positives of Bima Diamond Plan
- It gives life cover even in case of non-payment of premium for up to 2 years. This feature does not leave you vulnerable at the time of financial distress.
- The death cover continues beyond the policy maturity and can keep you insured till the age of 76 years.
- You can add term assurance and accident rider to enhance your death cover.
- You can avail loan from this policy for up to 80-90% of surrender value.
Negatives of Bima Diamond Plan
- The premium rate is too high. For a sum assured of Rs 5 lakhs, the premium is up to Rs 46,000 per year.
- Maximum sum assured is Rs 5 lakhs. This amount is exceedingly low for a normal middle-class family.
- Though touted as a benefit, the sum assured gets halved in extended protection period which is grossly insufficient for a family after 20 years.
- The maturity benefit would be very low as it pays the basic sum assured less the periodic money back payment already done. Thus if the sum assured for a 20-year policy is Rs 5 lakhs, the maturity sum assured would be only Rs 2 lakhs.
- The returns from LIC Bima Diamond is less than the market rate. LIC is still giving 5-6% return. One would be in a better position by opting VPF and PPF for saving purpose.
- Auto Coveris highlighted as a unique benefit but in case of death during this period, the due premium is deducted from the benefit payable. So it seems the idea is to run the policy as much as possible instead of showing in their books as LAPSED policies.
- At maturity you are eligible for Maturity Sum Assured, which is 55% to 40% of Basic Sum Assured and Loyalty Addition. Hence, do notthink that the maturity benefit will be full sum assured as is the case with other plans.
- Extended cover is showcased as a unique benefit. But, head-to-head, LIC’s New Jeevan Anand seems to be better in this aspect as offers the extended cover forever and full to the value of sum assured. In this plan, it is only up tohalf of policy term and half of sum assured.
Any Endowment insurance plan of LIC is primarily an investment product, wherein you actually neither get good insurance cover nor satisfactory investment returns. It is sold as a good combination of protection and returns while all endowment insurance policies of all insurance companies fail on both the counts. In fact, the problem is mixing insurance with investment. Such a combo product never benefits the investor but only the insurance companies and the agents since the premiums are high, commissions are high and when time you discover this after taking the policy, you realise it has been structured in such a way that you can exit only at prohibitive costs (losses) to you.
Hence, we would recommend you to consider only a good term insurance plan for death cover, if you do need such a cover. For tax saving purpose, choose Equity Linked Saving Schemes (ELSS) or PPF/DSOPF. For investments, nothing better than a good portfolio of mutual funds.
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