Firm rates forces LIC to drop annuity plans
Aug 15, 2000

Author: PersonalFN Content & Research Team

The rising interest rates have forced the country's one and only life insurance major, Life Insurance Corporation (LIC) to drop six of its annuity plans. The institution has also raised the premium on its Jeevan Suraksha (Pension) plan with effect from July 1, 2000.

Declining yields on the portfolio of investments seems to have made LIC withdraw these policies and revise the premium. The move comes close on the heels of the interest rate cut announcement by the Employees Provident Fund from 12% to 11%. For prospective policyholders and investors, its bad news as they will command lower rate on their savings.

The corporation has withdrawn Jeevan Dhara, Jeevan Akshay, Immediate annuity (with and without return of purchase price) and Deferred annuity (with and without return of purchase price). To fill in the vacuum created by the withdrawal of these plans, LIC has also introduced two new plans New Jeevan Dhara and New Jeevan Akshay.

The withdrawal, re-introduction and revision of premium rates is a part of the ongoing exercise within LIC to rationalise its product portfolio.

Jeevan Suraksha, the popular pension plan launched in 1996 and offering deduction from income under section 80CCC of the IT Act, was favourite with the tax payers as it offered additional tax saving, besides offering attractive returns.

The increase in premium payable is in the range of about 10-12 percent. As far as the withdrawn plans go, the common thread that runs through these is the provision for the return of a lump sum amount at the death or vesting of the beneficiary. With some of these policies assuring returns close to 13 percent on an annualised basis, the move was inevitable.

Jeevan Akshay, one of the plans that has been withdrawn, used to pay an annuity of 12% per annum payable monthly. This amounted to 12.86% on an annualised basis. Jeevan Dhara and Jeevan Akshay both (with-profit) plans assured a lump sum in addition to bonus and pension amount. The former was a deferred annuity plan.

The other two withdrawn plans - Immediate annuity (with return of purchase price) and Deferred annuity (with return of purchase price) - are both "Without Profit plans. Both Jeevan Akshay and Jeevan Dhara were offered as the improved versions of the "immediate annuity plan" and the "deferred annuity plan".

LIC is definitely moving in line with the market, which will surely benefit investors and LIC policyholders in the long run. For the present, the institution is trying very hard to establish itself as a `people's institution'.