LIC Bima Account Plan 1

Here is a brief look at the basic features of the LIC Bima Account Plan 1 (basic):

• Entry age- 11 to 50 years

• Maturity age- 18 to 57 years

• Payment mode- Yearly, Half-yearly, Quarterly, Monthly (ECS)

• 6% guaranteed interest payable on policy-holder’s account, calculated on a day-to-day basis and credited at the end of the month

• When a lapsed policy is in revival period, interest earned will be 5%

• Premium can be topped-up, which is accumulated in a separate account. Top-up amount cannot exceed sum of regular premiums.

• Sum assured- Annual premium x10 to x20 according to age and other variable factors

• Loan available after first policy anniversary, from Rs.1000 to 60% of account balance

• Sum assured can be decreased, with effect from next policy anniversary

• Non-linked plan (not influenced by market fluctuations)

With its 6% interest claim, LIC seeks to provide an alternative to regular savings accounts which usually provide 4%. However, the variable component of the sum is not immediately clear to the proposer. While the plan provides a versatile source of savings for conservative investors, return on initial investment is less than traditional options like fixed deposits (9% interest).

Let us take a closer look at the drawbacks of this plan:

• Policy term is only 5 to 7 years. This means that it cannot function as primary life insurance for a person with a number of dependents.

• A large number of deductions. While all charges are transparent as promised, these deductions will eat into your premium and significantly reduce the final amount. Here is a table of all applicable charges: 

• No guaranteed bonus. Minimum sum assured is 10 times the annual premium. Now if you are paying premiums for 7 years and some of it is deducted in charges, the difference between 10 times considered premium, and 7 times the premium you pay, is not much. The maximum sum assured is 20 times the annual premium for young customers, but this bonus is not guaranteed.

• ICICI PruSavings Suraksha, for example, includes 5% guaranteed benefits for the first 5 years.

• Electronic payment only. Although this is not an online plan, monthly payment of premium can be done only through the ECS (Electronic Clearing Service) mode.

Should I go for this?

LIC life insurance has created a wide network of agents and clients, making their products easily accessible. As LIC Bima Account 1 has an affordable minimum premium and a short policy term, it is not a long term commitment. Under favorable conditions, it may prove to be a reliable source of returns in the short run.