Common Problems With “Lic endowment plan returns” You Need to Know
Here are some common problems with LIC endowment plan returns that you need to be aware of:
- Low Returns: The returns on LIC endowment plans are generally lower compared to other investment options such as mutual funds, stocks, and fixed deposits. The returns are dependent on various factors such as policy term, premium amount, sum assured, and bonus rate. The policyholder may not receive the expected returns if the policy term is short or the premium amount is low.
- Bonus Rate Fluctuation: The bonus rate for LIC endowment plans is not fixed and can fluctuate depending on the company’s profits and other factors. The bonus rate may decrease in certain years, leading to a lower payout for the policyholder.
- Surrender Charges: If the policyholder decides to surrender the policy before the end of the policy term, LIC may levy surrender charges, which can reduce the amount received by the policyholder. Surrendering the policy early can also lead to a loss of the bonuses accumulated over the policy term.
- Inflation: The returns on LIC endowment plans may not keep up with the rate of inflation. The value of the lump sum amount received at the end of the policy term may not be sufficient to meet the policyholder’s financial needs.
- Long Policy Term: The policy term for LIC endowment plans is generally long, ranging from 10 to 30 years. The policyholder may have to pay premiums for a longer duration, which can lead to a financial burden. If the policyholder decides to discontinue the policy mid-way, it can lead to a loss of the premiums paid so far.
It is advisable to read the policy documents carefully and understand the terms and conditions before investing in an LIC endowment plan. It is also recommended to consult an LIC agent or financial advisor before making the investment decision.
Factors affecting the return
The returns on LIC endowment plans depend on various factors such as the policy term, premium amount, sum assured, and bonus rate. Here are some of the ways in which LIC endowment plans can generate returns:
- Maturity Benefit: If the policyholder survives the policy term, he/she receives the maturity benefit, which includes the sum assured and the bonuses accumulated over the policy term. The maturity benefit provides a lump sum amount, which can be used for financial planning, such as meeting future expenses, funding a child’s education, or planning for retirement.
- Death Benefit: In case of the policyholder’s untimely death during the policy term, the nominee receives the death benefit, which includes the sum assured and the bonuses accumulated till the date of death. The death benefit provides financial security to the policyholder’s family and dependents.
- Bonus: LIC endowment plans offer bonus benefits to the policyholders. The bonus is a share of the profits earned by the insurance company, which is added to the policyholder’s savings component. The bonus can increase the policy’s maturity benefit or provide an additional payout along with the maturity benefit.
- Tax Benefits: LIC endowment plans offer tax benefits under Section 80C of the Income Tax Act, 1961. The premium paid towards the policy is eligible for tax deduction up to a limit of Rs. 1.5 lakh per financial year. The maturity benefit and the death benefit are also tax-free under Section 10(10D) of the Income Tax Act.
The returns on LIC endowment plans can vary based on the policyholder’s age, health, and other factors. It is advisable to consult an LIC agent or financial advisor before investing in an endowment plan.