LIC policies Magic Plan – Retire &
Enjoy! Surrender or Continue?
Here's a case of an IT Engineer lady who
was 'sold' a total of 11 policies per above plan:
Date of Commencement of all eleven
policies was May 2004 with each policy maturing in 17,18,19, 20, 21,
22, 23, 24, 25, 26 years i.e first one matures when she turns 50 and
last one matures when she turns 60.
In terms of premiums, she pays a
total of 65840/- per year and has already paid for 12.5 years (2nd
half yearly premium of 32920/- is due in November 2016). So for the
first policy with SA of 155000 she has 5 years left to pay premiums,
2nd one 6 years, 3rd one 7 years and so on until 10th
14 years. She says the LIC agent introduced to her through a good
friend, had a look at her pay slip (she was naive) and
proposed her immediate savings under Sec.80C plus of course Retire &
Enjoy! She was told that from year 2021 onward, she doesn't have to
pay any more premiums but enjoy annual maturity values between Rs.2.5-3
lakhs for the next 10 years with Risk Cover (operative word should
have been the premiums for rest of the policies are deducted from the
maturity value of earlier year policy). Additionally, the 11th
policy was Jeevan Raksha Pension Policy with annual premium of
Rs.10000/- for 16 years.
Although it seems a bit late in the day
to consider surrendering above policies after having paid premiums
for 12 years, I could see that for half of these policies, she still
has to pay premiums for 10+ years. So I decided to dive deep and
analyze an answer to the following questions:
Will it be financially productive
to surrender the policies now?
Upon surrender, will the SV enable
the policy holder to recoup her 'losses' so to speak?
Will alternative safe investments
provide her returns over & above the Projected Maturity value?
First task for her was to get the
Status Report and Surrernder Value Quotation from LIC which she did. Based on the data in these reports, I
set out to enter the values in a Spreadsheet which is easy for any
layman to understand. I also tried to unravel the calculations using
a Surrender Or Paid up calculator. Below is a snapshot of the
Spreadsheet:
NOTES:
Above sheet is a consolidated analysis
to provide broad picture for better decision making. Perhaps results
may slightly vary if each policy is analyzed individually. Key
takeaway: the policy holder has lost previous 12 years of investment
returns or about 30 lakhs. If she had NOT been sold this policy, then
her premiums invested would have given her approx. 65 lakhs by the
last policy maturity due date in 2030. But then, its like saying had
one invested in Wipro in 1980, I would have been a crorepati today!
Going forward from here, there's
negligible difference between the maturity amount from LIC and the
returns from risk free RDs/FDs. So the verdict might as well be to
reconcile and continue to pay the balance premiums.
Is there any angle not covered in the
above? Inflation? Are there any other options not considered? No
Equity based investment considered due to risk factor plus
comparison had to be apples to apples.
Your views are welcome.
Above chart has been updated....
http://vishigan.blogspot.com/2016/08/update-magicplan-retire-enjoy.html
There's been an overwhelming response to the previous post clearly validating that many have been impacted. An excel template is under preparation and will be posted shortly. 
