LIC is back with its most popular instant retirement plan Jeevan Akshay VII or should I say, has restarted the Old Jeevan Akshay VI retirement plan (which was withdrawn in December 2017) by tweaking some of its features.
Jeevan Akshay is one of LIC’s most popular retirement plans. With the changes in the interest rate scenarios, a modified version is created again and again. The reason for its popularity could be because of the trust and confidence that comes with LIC as these products are also available from other insurance companies.
Let’s see what LIC has brought to the table this time in this new instant annuity plan.
LIC Jeevan Akshay VII- In brief:
LIC Jeevan Akshay VII is a guaranteed lifelong retirement plan that begins with the pension payment from the next month of investment or according to the mode chosen.
Jeevan Shanti, another popular LIC annuity product that offered both immediate and deferred annuity options, withdrew the immediate annuity option with the introduction of LIC Jeevan Akshay VII.
From now on LIC offers three products in the area of pension products:
- LIC Jeevan Akshay VII (Immediate pension plan)
- LIC Jeevan Shanti (Deferred Pension Plan)
- Pradhan Mantri Vyay Vandana Yojana (PMVVY)
Read more about PMVVY here.
Both PMVVY and Jeevan Akshay VII With immediate annuity plans, you have to pay the insurer a single premium. Depending on the type of reception you have chosen (monthly / quarterly / semi-annually / annually), the insurer starts paying the pension amount according to the pension option you have decided.
In contrast to the Jeevan Shanti plan, which is now a deferred pension plan where you make the payment to the insurance company individually or regularly and the premium is invested according to the insurance mandate and after the deferral period you receive a pension according to the selected mode.
(Also Read: How Does The India Retirement Plan Work?)
Here are some of the key features of LIC Jeevan Akshay VII::
This plan can be purchased both online and offline. The online option offers a 2% discount by increasing the basic pension.
(Also Read: How Do I Choose a Suitable Online Term Plan?)
LIC Jeevan Akshay VII – Pension Options Available:
The following pension options are available under this plan:
- Lifelong annuity at a single rate (option A): The pension amount will remain the same until your life.
- Annuity payable for a certain term (5, 10, 15 or 20 years) and thereafter as long as the annuity is alive (option B, C, D&E): With this option, an annuity is paid for a certain period of time, regardless of whether the investor is alive or not, and thereafter until the annuity is alive.
- Lifelong annuity with return of the purchase price in the event of the death of the pension recipient (option F): This is something like a bank FD with interest payout. Where you will get the pension until you are alive and later the money invested will be returned to your candidate.
- The lifelong annuity is increased by a simple 3% rate (option G).: With this option, your pension will continue to increase by 3% per year. For example, you will receive a pension of Rs 20,000 in the first year. In the second year, this option will give you Rs 20,600. In the third year the pension is Rs 21,200. And so on.
- Lifelong pension with 50% payment to the joint owner in the event of the death of the pension recipient (option H): Means if Rs 1000 is the annuity the investor will receive after death, Rs 500 will be the annuity paid to the joint owner for the rest of his life.
- Lifelong pension with 100% pension to the co-owner in the event of the death of the pension recipient (option I): With respect to the example above, the joint owner will receive Rs 1000 as an annuity even after the death of the annuitant.
- Lifelong annuity, then 100% annuity to the joint owner and then return of the purchase price to the nominee (option J).
(Also read: Retirement plan or retirement plan – which should I choose?)
Benefits on due date / handover / death in LIC Jeevan Akshay VII:
There is no death or maturity benefit associated with this. However, if you opted for the “return of the purchase price” pension option, you or your family will receive the purchase price back at the end of the term. This can either be a lump sum or in the form of an annuity or in installments over the selected period of 5 or 10 or 15 years. subject to a minimum installment amount for different payment methods as follows:
The interest rate applicable for calculating the installment amount between May 1, 2020 and April 31, 2021 is 4.71% pa.
If the annuitant has opted for the annuity options with return of the purchase price (option F and option J), the policy can be returned at any time after three months from the date the policy was issued.
The surrender value payable is less than:
- 95% of the purchase price
- OR (F1 * Equivalent Annuity Amount Payable for Annual Mode + F2 * Purchase Price) – Annuity installments paid under the policy for the insurance year of return up to the date of return;
where F1 is the pension factor for the age (last birthday) at the time of handover; and F2 is the Pure Term Assurance Factor that applies to the age (last birthday) on the handover day.
If they were held together, F1 and F2 of the younger annuity would be taken into account.
LIC Jeevan Akshay VII – Annuity rates (images):
Below are two sample images of annuity payments under LIC Jeevan Akshay VII::
Pension amount to be paid in annual mode for a 50-year-old under various options (for offline purchase):
You can clearly see in both figures that the older the age and the more you leave with the company, the higher the pension amount would be.
LIC Jeevan Akshay VII- Should You Invest?
First, let me make it clear that if you are in the accumulation phase (before retirement), LIC Jeevan Akshay VII it’s not for you It is only suitable when you need a steady income, especially after you retire. In some cases the purchase of instant annuity plans is mandatory, for example when You are an NPS investor who requires you to invest 40% of the pension corpus in an annuity or annuity product.
(Also Read: Why Is Retirement One Of The Most Important Financial Goals?)
This product can be used to complement retirees’ income generating bucket along with other options such as:
This would help manage inflation and taxes better. Read more about the bucketing strategy here.
(Also Read: What Is Inflation And How Does It Affect Your Financial Plan?)
In the graphs above, the ROI would be 4 to 6% (after tax) (actual interest rates may vary) which doesn’t look too bad, especially in today’s scenario with interest rates falling. Plus security and guaranteed income would be a bigger issue when planning income generation after retirement.
However, it can also be compared to similar plans offered by private insurers such as HDFC Life Immediate Annuity Plan or Retirement planthat I checked before and choose what suits you best.
But it is also a fact that interest rates would not stay the same and in a developing country inflation would not stay on the downside for long, which in turn depresses interest ratesTo reduce reinvestment risk, some open products should be added alongside these lifelong lock-in retirement plans.
All in all, generating regular income after retirement may not require a product but a defined strategy that takes into account your income needs, tax considerations, inflation, lifestyle requirements, etc. So you need a retirement plan and not just a retirement plan.
And where does the LIC Jeevan Akshay VII fit into the plan that has to be seen.
Feel free to ask your questions in the comments below
This review of Jeevan Akshay VII was carried out by Varun Baid
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