LIC’s Flexi Plus (Plan No. 811) :
What are the highlights & features of LIC’s Flexi Plus?
• LIC’s Flexi Plus is a unit linked plan.• Policyholders Fund Value is payable on Maturity.
• Maturity proceeds are payable even after settlement of Death Claim
during the term.
• Benefits in event of the untimely death of the Life Assured within the
policy term -
o Immediate payment of Full Sum Assured
o An amount equal to sum of all future premiums is credited to the
Policyholders Fund.
o Future premiums need not be paid by the beneficiary
o Policy continues upto the Date of Maturity
o Policyholder’s Fund Value Payable at Maturity
• Four (4) free switches per policy year.
• Partial Withdrawal allowed after completion of 5 policy years.
What are the benefits payable on Maturity?
On the date of Maturity an amount equal to the ‘Policyholder’s Fund’ value ispayable. This amount is payable irrespective of the survival of the Life
Assured.
What are the benefits payable on death of the Life Assured?
The nominee/legal heir shall be entitled to an immediate payment of a lumpsum amount equal to the Sum Assured.
The policy continues upto the date of Maturity but no future premiums are
required to be paid by the beneficiary. On the contrary, an amount equal to the
sum of all future premiums due after the date of death shall be credited to the
Policyholder’s Fund. For example, let us take the case of a policyholder who has
opted for a 20 year term with a yearly premium of Rs.25000/- . If death occurs
after payment of say 1 yearly premium i.e 25000x1=25000/-. Then 19 years (20-
1=19) remain for completion of policy term and the future premiums due
against the policy shall be 19*25000=475000. In LIC’s Flexi Plus, this
amount(Rs.475000) shall be credited to the Policyholders Fund. The units shall
be allocated at the unit price applicable for the fund type opted under the
policy as at the date of booking of liability for death claim. On the date of
maturity the Policyholders Fund Value of shall be payable.
Can I withdraw amount from the policy when I am in need of money?
(liquidity)
A policyholder can partially withdraw the units at any time after the fifthpolicy anniversary. Partial Withdrawals may be in the form of fixed amount
or in the form of fixed number of units. A policyholder should have to a
minimum balance of two annualized premiums in the Policyholder’s Fund
while opting for Partial Withdrawals. Partial withdrawal shall not be allowed
to nominee/ legal heir after death of life assured.
Logic for Expected Returns:
The Debt Fund option above is similar to Debt: Gilt and Long Term Mutual Fund. I looked at the 10 Years return of funds from this category. It varied from 3.34% to 7.91% annualized. So you should expect similar returns from the LIC Flexi Plus – Debt Fund.
Similarly LIC Flexi Plus – Mixed Fund is similar to Hybrid: Debt-oriented Conservative Mutual Fund. In this case the 10 year return of funds varied from 7.19% to 14.33%.
LIC Flexi Plus – Benefit Illustration:
The benefit illustration on LIC Website is pathetic as its hardly visible. I tried out from other sources are here are the numbers:
- Age: 35 Years
- Policy Term: 20 Years
- Premium Mode: Yearly
- Premium Amount: Rs. 25,000
Fund Type: Debt Fund
- Maturity Value assuming Gross Return of 6% p.a.: Rs 7,67,825 (Net Yield: 3.93%)
- Maturity Value assuming Gross Return of 10% p.a.: Rs 12,43,436 (Net Yield: 8.05%)
Fund Type: Mixed Fund
- Maturity Value assuming Gross Return of 6% p.a.: Rs 7,57,196 (Net Yield: 3.80%)
- Maturity Value assuming Gross Return of 10% p.a.: Rs 12,24,777 (Net Yield: 7.93%)
The net yield has been calculated based on IRR function using excel.
The difference between gross and net yield is the expense. The significant point is Mixed fund with higher risk has slightly lower return in the benefit illustration. This is due to the higher fund management charge for mixed fund than debt fund.
Should you Invest in LIC Flexi Plus?
LIC Flexi Plus is a ULIP which invests in debt related instruments. Most of debt mutual funds have expense ratio in the range of 2% to 2.25% and its similar in case of LIC Flexi Plan (taking all the expenses in account). So the long terms returns from LIC Flexi Plus – Debt Plan would be in lines of Gilt Mutual Fund which might vary from 3.5% to 7.5% per annum. While in case of Mixed Plan the return would be in line with Hybrid: Debt-oriented Conservative Mutual Fund which has given 7% – 14% annualized return over a long period of ten years.
So if you plan to invest in this LIC Flexi Plus, it’s good to go with Mixed Plan. Other than this you can also look to invest in PPF which is also a tax saving instrumentunder sec 80C and gives tax free return of 8.6%. But also keep in mind that PPF returns are no more fixed and would change every year.
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