5 major changes in life insurance policies from Jan 1, 2014 – How it affects you ?

POSTED BY Jagoinvestor ON September 30, 2013 COMMENTS (189)

Some major changes are going to happen in life insurance industry from Jan 1, 2014, especially in traditional policies like Endowment Plans, money-back plans and even ULIP’s. You will surely have a LIC policy or any other private sector traditional plans or might buy them in coming times. Here are 5 major changes which you should be aware about and they will come  into effect from Jan 1, 2014.

1. Service Tax introduced in LIC Policy Premium

Till now LIC was not charging the service tax of 3% from the customers and paying it to govt from the pool of money collected itself, but now the service tax will have to be charged separately from policy holders. Which means that if your LIC premium was Rs 50,000 per annum, now it will be 3.09% higher in first year, which is Rs 51,500  and after 1st year, it will be 1.545% as per moneylife article.

While customers see it as additional burden, note that its not the case exactly, Earlier – LIC was paying the service tax from the pool of money collected from investors only, which reduced the bonus amount given back to them. But now because it will not be taken out from the funds, that means the bonus declared each year will go up by that much margin and will come back to investors only. Note that Pvt companies were charging the service tax already, so nothing changes on their side. Only LIC was not charging it separately, which they will have to do from Jan 1, 2014 deadline.

2. Increase in Surrender Value

One of the major changes which has happened, is the change in surrender value for policy holders. The rules of surrender value depends on the premium paying term of the policy. If the premium paying term for policy is less than 10 yrs. Then the policy will acquire the surrender value after paying premium for 2 yrs (earliar it was 3 yrs), however if the premium paying tenure is more than 10 yrs , then the surrender value will be acquired only after paying 3 yrs premium.

In both the cases, the minimum surrender value would be 30% of the premiums paid without excluding the first year premium. Note that earlier, if you used to surrender after paying 3 premiums, you got 30% of premiums paid MINUS first year premium, but now as per new rules, the first year premium will not be deducted. Learn everything about LIC policies working before Oct 1

Another good change is that, from 4th-7th year, the minimum surrender value would be 50% of the premiums paid, and has to reach 90% of premiums paid in last 2 yrs of policy paying tenure.

3. Possible Decrease in Premium on LIC Policies

There is a great possibility that the premiums on LIC policies will come down by some margin, because the mortality rates will now be revised by LIC in calculating the premiums.

Mortality rates are the rates at which the insurance company deducts the fees for insuring you based on your age. LIC had been using old mortality rates till now, but now they will have to use new mortality rates . Just to give you an idea on reduction of premium, when I check the mortality rate for a 40 yrs old person in old table, its 0.001803 . But in new rates its 0.002053 . Which is approx 10% better. Lets not go into detailed calculation at the moment, but your risk premium part should go down by 10% (not the full premium, because only some part of whole premium in traditional policies are risk premium and rest is investment part) .

4. Higher Death Benefit

If the policy holder is above 45 yrs of age, then the Sum Assured has to be more than 10 times the annual premium, and for those who are less than 45 yrs old, it can be minimum 7 times the premiums. Note that for claiming the tax exemptions, your sum assured has to be 10 times the base yearly premium. So when you buy the policy in-case, you need to keep it in mind. BasuNivesh has done a great point by point notes on each aspect of regulation, in-case you want to go into details.

5. Agents’ incentives have now been linked to the premium paying term

Now agents commissions is linked to the premium paying tenure. Earlier a lot of agents used to sell the policies which had higher maturity tenure, but limited premium paying tenure (like 30 yrs policy with 10 yrs premium payment) . Here is the new commission structure taken from Moneylife article 

In case of regular premium insurance policies, a policy with a premium paying term (PPT) of five years will not pay more than 15% in the first year. Products with PPT of 12 years or more will have first year commissions up to 35% in case the company has completed 10 years of existence and 40% for the company in business for less than 10 years.

The funny aspect is that a lot of LIC agents tried to mislead many new investors by projecting date Jan 1, as the deadline when a lot of LIC products will stop giving good features using the official notification. LiveMint has even captured it in this image.

misleading ads by LIC agents

What should you do ?

The insurers have to refile all their products to IRDA and already lots of products have been approved and many are still waiting for approvals. So if you have a insurance policy, then you will get the communication from your insurer about any changes if any. Right now, for sure the traditional plans have got better, compared to their past avatars.

If you are adamant on buying endowment plan, better wait for some time and let things get more clear. Let me know about your thoughts on this change ?

189 replies on this article “5 major changes in life insurance policies from Jan 1, 2014 – How it affects you ?”

  1. SIVAKUMAR says:

    I invested single premium of Rs 160000/- in Reliance Life Insurane with market linked plan named Automatic Investment plan during 2008. This year 2016 I fore closed and got a Total refund of only Rs 185000/-. the Ins company deducted Rs 1854/- under sec 194DA. My tax slab is 30%. Sum assured Rs 2 Lakhs.. Kindly workout the balance to be paid? I have not availed any tax benefit while investing. Also reply whether it comes under Long term capital gain tax?

    1. Hi Sivakumar, we will be happy to answer a query related to product. This query you asked requires a calculation and dedicated time. We do not have that much bandwidth .

  2. Shashank says:

    Can I reduce the tenure of Jeevan Saral Policy. I started that in 2009 and the agent cheated by making the tenure as 35 years. Can I reduce the premium payment term to 20 years?

    1. I dont think there is any option to reduce the term as such !


    I am paying Rs.4798/- per month towards “LIC new retire and enjoy policy”.
    Premium paying term is 22 years (started from Aug-2013). Sum assured is Rs.16,50,000/-
    Now another 3 months are left to complete 3 years (Rs.4,798*36=1,72,728 Rs). I will stop paying premium after 3 years.

    What will be my surrender value if I surrender after 3 years or till what period if I wait so that i can get maximum of premium paid? Please compare to your article above point no 2.

    Whatever the surrender amount i receive, where i can invest the same to recover 1,72,728 – surrender amount.


      The best answer you can get only from the agent you invested through or just contact the company. The thing is your case is a bit personalised and other than company, no one can give accurate information


  4. aceleo26 says:

    hi manish,
    would like to surrender (3 years premium already paid) endowment lic policy which i bought of term X 20 yrs . premium of 25K/year. want to take a good one single policy with term insurance and invest the rest.
    please advise shall i stick to it , convert to paid up or surrender ? according to the new regulations coming up

    1. Yes, you should surrender it now .. and better take a term plan.

  5. Mohit says:

    Dear manish i have taken new jeevan anand lic policy last year this year i paid around 73844 my actual premium is 72529 so the service tax is around 1315rs my question is will i get rebate on 1315 rs?


    1. Vanish says:


    2. Why ? Do you get service tax back when we eat in restaurant ? Then why here ?

  6. Nishtha says:

    Its important to know the updates and the changes our government is making in life insurance polices, because it directly affects the insurers, and which policies they have bought or will buy.I have bought Tata AIA Life’s Insurance Fortune Guarantee offers Guaranteed Maturity Benefit that varies from 138% to 159% of Total Premiums Paid and Tax benefits u/s 80C & 10(10D) of the Income-Tax Act, 1961.

    1. Hi Nishtha

      Thanks for your sharing your valuable comment on this topic. Please keep sharing your views in future also



    I taken policy for two.lakh, I paid.a.premium of ₹ 15000 for one year.15 years back.can I get my.money back.


      The best answer you can get only from the agent you invested through or just contact the company. The thing is your case is a bit personalised and other than company, no one can give accurate information


  8. Gobinath says:


    i am taking a LIC New jeven anand plan in April 2015. i am paid monthly RS 5000.Maturity Amount is 11 Lakes (21 years). Now i am decide to reduce my Maturity amount and Monthly premium.

    Kindly Pls guide me How to Reduce my Monthly premium and Maturity amount.



    1. Hi Gobinath

      The best answer you can get only from the agent you invested through or just contact the company. The thing is your case is a bit personalised and other than company, no one can give accurate information


    2. koteeswaran says:

      By taking a policy ,you enter in to a contract with insuance company and you cannot either decrease or increase your premium amount or the term of the policy. What you can alter is your mode of payment that too only from lower frequency to higher frequency. That is you can change your mode of premium from mly to qly/hly/yly, qly to hly/yly, hly to yearly. You are allowed to change the nominee. As for as i know only these changes are allowed.
      Retd insurance

  9. JaydeepJain says:

    Dear Manish,
    Would you please tell me what will be the rate of service tax from 01.06.2015 on LIC premiums (1st year and on subsequent premiums) on both Endowment and pure term policies.

  10. mahesh bisht says:

    sir i have a policy from Lic namely New Jiwan Anand (815) for 2 Lacs for 20 years and yearly premium of Rs.11601. I understand the service tax but what i want to know that there is a addition of Rs.200 under the coloum Annual Acc Premium. can u explain it pleas.

  11. divya says:

    i am completed 3 years but this year only 2 police is done it so any tink happen with my agence

    1. Talk to company on that !

  12. Tarun says:

    Hi Manish,

    I want to invest 1 lakh ruppes, where should i invest, Plz Guide.

    1. What is your risk taking ability and for what goal you want to invest ?

      1. tarun says:

        Hi Manish,

        I want to invest money to save tax, also for my future use like for higher education of my child. I don’t want my money to get invested at higher risk. Small risk I can take. I want to invest 1 lakh per year.

        1. Then you can invest Rs 1 lac in debt mutual funds. Let me know if you wan to invest through us ?

  13. Nitin kumare says:

    I have a policy Jevan saral last 2 two year’s every 3 moths I pay but present becoz of some fancial problem I am not able to pay every three months so that can i want to ask can I change my payment monthly to yearly or if not so can I change my Jevan saral policy to another lic policy suggest me plzz…thx

    1. I think you can do that . talk to the LIC office !

    2. koteeswaran says:

      Dear mahesh
      I hopethat you have taken a policy for a sum assured of 2 lakhs. In that case rs.200 may be charged as an accident rider premium. With this rider in case of accidental risk you may get additional 2 lakhs as risk benefit. This has nothing to do with service tax. Service tax is charged in addition to the premium + rider premium+servic tax.

  14. arvind says:

    dear sir,

    i have buy online term insurance plane from max life insurance . company send me policy related document to me by post.but all the document related to term insurance policy not signed by any authority on behalf of max life only stamp seal use every where, my query is that
    any hand written sign shout be on the policy related documents or not
    only stamp seal are legal or not

    1. Stamp is good enough !

  15. Kumar says:

    Hi Manish,
    Thanks for Nice article.
    i took Aviva term insurance, after medical tests i got mail saying0 “you policy benefits at revised terms of 100% extra mortality rate on basic death benefit”
    and they doubled my premium.

    As medical reports all the tests are normal, reason they were quoting is overweight. please let me know. is the premium will be doubled in that case? i heard it will be just 10~15% extra.. please provide me basic details and charges as IRDA norms.

    1. Yes can range from 20-100% . It all depends on company underwriting terms !

      1. Kumar says:

        Thanks, for quick reply, they put 110% and all medical reports are fine, i checked with other insurance executives are saying its about 15~50% max,.
        In this case(like overweight), what are rules and regulations about this clause from IRDA. Companies are just telling its internal guidelines(not revealing to customers) and they were increased to 110%, tomorrow thwy can 200~300% as well. there will be some regulations/restrictions from IRDA, is there anything like that?

        1. I dont think so .. How a company wants to price the premiums is totally dependent on them and not IRDA . Also once they fix the premiums for you , it does not CHANGE later !


  16. Mehul says:

    Dear Manish,

    Nice article.

    I have started monthly premium of 20k in jeevan anand for 15 years just four months back. All new rules will be applicable in my case. My agent told me that I can expect 7.5 % plus something tax free from this policy. Now after reading all posts above I am very frustrated about return . Pls advice what can I do at this stage.?

    1. Did you calculate things yourself ? Yes your returns are not going to be really great . But I thinks its a good idea to find out how much IRR you can expect . Its easy to calculate in Excel sheet .

      At this stage you cant do much as the policy will acquire any value only after 3 yrs of payment and by then more damage will happen if you keep paying . I would have just let my 4 months money go .. and restart my financial life


  17. Jagan says:

    Hi ,

    I have taken New Bheema Gold Plan four years back….Can this be possible to chagne the plan to another plan…?

    1. There is nothing like “change” of plan .. you can sell it and buy another !

  18. balan mk says:

    I read many comments. All are talking about returns, inflation etc. The main objective of a life insurance policy is insurance cover. LIC is paying crores of rupees as death claim every year and it keeps on increasing . I think Insurance cover has not been taken into accounts by most of us.

    1. Yes, the main thing an insurance policy should do is INSURE people , but most of the policies are mainly investment policies


  19. Dr.Veena says:

    I have a LIC policy which i would like to discontinue as i am now applying for foreign nationality, so i can not hold this policy. How should i go about this to surrender and get the value as i invested in it for 10 years. Please help me with your expertise.

    1. Just apply for Surrendering of the policy

  20. pradipta says:

    I have taken ULIP plan(smart steps plus child plan) from MAX Life in 2008 july with annualy 25000 premium. for a sum assured 450000 for 18 year. But now, my fund value is around 132000/-. But till now I paid 144000/-. I feel it is not performing well. Do I need to continue investing in this or do i need to surrender this ULIP policy? As I know ULIP pays only after 5 year of investment.. like 10/15 year in long term…..

    Please comments….

    1. This is same for various ULIP’s . I think if you do not understand products, then better get out of this ULIP

  21. Sanjay Devrani says:

    Hi Manish,
    I am planning to buy LIC policy for me , joint plan insurance & 4 years daughter
    Please suggest any good plans?
    I am looking for short term plans. good ritruns & insurance
    Sanjay Devrani

    1. For what purpose are you buying these plans ?

      1. Sanjay Devrani says:

        Hi manish

        I am required for investment plan & not for market future


        Sanjay Devrani

  22. Chetan says:

    Hi Manish,

    First of all, a good articles and informative.

    I have a 3 policies taken 2 years back and is up premium payment date by feb 20th.
    While taking the policies, I did not add critical illness to them. I wanted to add them but my agent says that as per insurance changes from Jan 1st 2014, this rider has been scrapped. And can not be added.

    Please let me know if this is true? Why agents dont give information on critical illness rider?


  23. Samiksha Salvi says:

    Hi Manish,

    I am planning to buy LIC policy for my 1 year old daughter.

    Could please suggest any good plans?

    I am looking for long term plans.

    Thanks in advance!!


    1. We do not suggest any LIC plan from investment point of view. Are you not comfortable with mutual funds ?

  24. Bikram says:

    Hi ,Manish!!..
    I would like to understand the aspect of mortality rates calculations and its effects in reduction of premium under the new regulations. can you kindly explain that for us??..

    1. What exactly you want to know on that, Mortality rates are the chart of probability on death in different age group, lower the probability , lower the premiums . from that only premiums are decided .

  25. akgc2 says:

    I had taken LIC Money Back policy (Plan Table 75) back in Dec-2003 for 20 Years term. I am paying Rs 31364/- as annual premium for Sum Assured of Rs. 5 Lakh.

    Till Dec-2013 I have paid 10 premiums and 10 are still pending. In my online LIC account it shows the vested bonus as 1,81,500/- I have already received 2 cash back of Rs 1 Lakh each at the end of 5 (Dec-2008) and 10 (Dec-2013) years respectively.

    Could you please let me know what would be the maturity value for this policy in Year 2023 and also the surrender value (If I surrender this policy Today) based on the premium or vested bonus I have mentioned above. Policy has completed 10 years.

    1. If you check http://www.licindia.in/periodic_moneyback_003_features.htm ,. its clearly written that you get 20% moneyback 3 times and then 40% of sum assured at the maturity period . So 40% of 5 lacs + accrued bonus . So it would be 2 lacs + bonus which is accumulated in account.

      1. akgc2 says:

        Hi Manish
        I was not looking for this. This is known to me and all the policy holder. The grey area with all the policies is the Bonus and Final Addition Bonus (and Loyalty Addition for some policies).

        These are never known to common man however an LIC Adviser or expert in the company could help to know these numbers based on his experience and the numbers from the past matured policies.

        That is what I am looking for.

        I checked with the LIC people and came to know the surrender value for my policy is 1,10,770 as on Today.

        1. In your last comment , you also asked for the maturity amount, thats why I replied you that last thing I said, but as your said the real thing to know is the bonus part at the end, but yea , that is not known today, you can only estimate it.


  26. Raja M says:

    I would like to know about life insurance(amulya_jeevan)

    In what are the cases the policy will be denied or void

    1. It will not be denied at any cost, you will be able to buy it for sure !

  27. NADEEM SHAIKH says:

    Dear Manish

    I have taken LIC Retirement Plan [Plan No 14] dt. 28.03.2011 details as given below :
    Date :28.03.2011
    My Age : 27 at that time
    Premium : 36,530/-p.a. [Annually]
    Term : 30 Year
    Retirement benefit :
    a.Retirement :Started from 58 of Age of Retirement to 75 Years i.e. from 2042 to 2059.
    b.Benefit =Accidental benefit + Vested bonus + Death Benefit

    My Question :
    1] I have paid 3 premium dt.28.03.2013. Now i went to agent and informed him to surrender some policy and i have paid 3 year premium. As per Him it is not possible now bcs even though i have paid 3 years premium, period of 3 year has not been completed till now and it is possible only after 28.03.2014.

    2] Whether i will get only 3 years premium Less 1 year premium = balance* 30% surrender value. whether new provision of increase of surrender value not applicable to me.Further Bonus accrued for 3 years will not be received to me.

    3]Agent submitted my application to LIC office to understand Surrender Value but they said that Surrender value will be understand only after completion of 3 years. So they are not giving me any Surrender value details.

    What will be the best solution in My case. I need Money but not very Less or whether to paid 4 year Premium and get it Surrender.Kindly Guide Me.

    1. 1. He is correct on this, The surrender value will only be acquired only after 3 yrs is complete. It might happen that their software tells the answer

      2. Old provisions will apply to your policy .

      3. Yes, it might happen that its possible only after 3 yrs is completed . But do not expect a lot. You should not get more than 30% of your premiums paid (excluding 1st year premium) . So it will not be very high !


      1. NADEEM says:



  28. Hi
    Regarding the IRDA guideline changes from January 2014 , Could you please clarify me the below queries.
    1. are these guidelines will be applicable to existing policies or not ?
    2. As the premiums are going down because of increase in mortality rate , where do i find the new premium details ? are the sum assured going to affect because of lower premium amount. Are all the policies taken before 2014 will have lower premium amount ?

  29. pramod khandelwal says:

    I have a question. Is, Svc Tax applicable for existing policies also from 2014?

  30. dr salimuddin says:

    Great article ! Very informative..
    happy new year

  31. dr salimuddin says:

    good good.
    Great ! . Thanks for confirming !
    happy new year 2014

  32. amit kumar jain says:

    hi manish,

    Can you pls answer 1 thing
    Is it a good idea putting money in LIC’S endowment polices for a diversification along with higher risk cover, that which is featured in Jeevan Mitra triple cover or you believe that having a cheapest term cover with any company along with investments in mutual funds or reinvesting in fds is a better option for sure.

    Amit kumar Jain

    1. Amit

      If you are ok with 5-6% return in long term with 100% surity , then you can surely go with any Endowment plan (LIC or pvt) . Its a choice you make, one cant suggest anything !


  33. Jayanta says:

    Dear Manish

    I have purchased Jeevan Astha for 5 year tenure now I think this January it will be matured, can you tell me how much I will get ( I have invested Rs.25000/-) and what is the Tax treatment ( taxable or non taxable) of the amount which I will get.


    1. I believe it was “Double your money” scheme, so you will get that only ! and as the money is from insurance product, it will not be taxable !

  34. Naveen says:

    Hi Manish, I am 41 years old, planning take Jeevan Saral policy, before 31st Dec’2013 Old policy is best or after 1st Jan (New policy is best…in all respects…please give in details what will be plus and minus..Thanks-Naveen)

    1. Naveen

      Please open a thread on our forum to discuss this – http://www.jagoinvestor.com/forum

  35. Anandita says:

    I have a question. Is, Svc Tax applicable for existing policies also from 2014?

  36. Rajeev Rana says:

    If you observe the death claim settlement ratio for term insurance policies from different companies, you will understand that a pure term plan is like a paper umbrella which is o.k. during sunshine but usually doesn’t work when it starts raining. A proper combination of different life insurance & financial products based on the individual’s need can provide a complete peace of mind with 360 degree protection where nothing can penetrate to disturb one’s plans…

    1. Rajeev

      Can you share more on this , What do you mean by your statement ! . Why wont it benefit if some one has only a pure term plan ? What problems they will face ?

      1. Rajeev Rana says:

        Dear Mr. Manish,

        The term insurance policy has a grace period of 15 days only for the premium payment. When something goes wrong with the person’s financial/physical condition, he normally fails/forgets or ignore to pay the premium and the policy lapses accordingly. If the person dies during that period, no claim is payable. If you check with different insurance companies you will find that the reason for non payment of the death claim was that most of the policies were lapsed when the claim was reported. Whereas on the other hand, this is not the case with endowment type of insurance policies. Also it can provide some sort of financial support by way of loan on the policy.
        Endowment type policies combined with PPF kind of other instruments can provide the best financial solution.
        As you understand that there is no substitute to LIFE INSURANCE, hence a complete financial planning needs to proportionately combine various saving instruments with Life Insurance depending on individual’s needs and future plans. The basic formula for FINANCIAL SUCCESS is that, there must always be CONTINUATION OF INCOME in the family, which can be assured by insuring the person’s earning potential during his earning span. This will help the family if anything untoward (Death/Disability) happens to the bread winner. Also if everything goes fine, it will help him to retire with laughter lines and not the worry lines for his golden years making him self dependent with the help of pension from life insurance policy’s maturity proceeds.

        I hope it will help you understand the logic behind my statement.

        With Best Wishes Always,

        Rajeev Rana
        B.E. (Mech.)
        M: +91 9321296940

        1. Yes, I agree with you , but even with Endowment policies, they will not get INSURANCE part , if policy is lapsed, they only get the Savings part (incase the policy has run for more than 3 yrs) , So in that case from pure life insurance purpose , endowment is no better than other form of policies . I hope you will agree on that ?


          1. Rajeev Rana says:

            Relaxations in the matter death claim under policies where premiums are paid for full 2 years: (L.I.C’s Endowment type policies) :

            I. Death of life assured were to occur after expiry of grace period:-
            a) But within 3 months from F.U.P.: Full S.A.+Bonus- Unpaid Premium.
            b) But within 3 to 6 months: Half the Sum Assured & No Bonus.
            c) But within 6 to 12 months: Proportionate Paid up value & No Bonus.

            II. Under (b) & (c) above, no deduction towards any unpaid premium due before the death or after, within the policy year of death.

            III. If the premiums are paid for at least 3 full years : Concession will be given if the death takes place in the 4th year, as in (a) above. i.e. if the premium is not paid for the full year and the death takes place during that period, the full Sum Assured with Bonus declared with Bonus for unpaid year is payable with recovery of unpaid premium.

            IV. The above concessions are not available for : Mortgage Redemption plan, Pure Term & Convertible term plan, Bima Sandesh, Bima Kiran, Jeevan Sarita, Jeevan Shree & New Jeevan Dhara.

            V. Under CDA plans & Children anticipated assurance plan if death takes place after the date of FUP but within 12 months : All the premiums paid there under will be refunded on ex-gratia basis.

            (Above concessions are available on basic sum assured only).

            Most of the insurance people (more than 95%) are not aware of the above facts, hence they simply misguide the public in many such cases..

            I hope it will clear your doubts.

            Rajeev Rana
            +91 9321296940

            1. Thanks for explaining Rajeev .

  37. Senthil says:

    Hi Manish,

    Could you please suggest me top three endowment / money back plans for a woman aged 26 yrs.

    1. Hi Senthil

      I myself dont support investments in endowment / moneyback plans, so wont be able to suggest them .

  38. SURESH says:

    Point 2: Increase in Surrender Value

    Though the scale of Guaranteed Surrender Value has increased as per the new regulations, the actual surrender value is generally higher than Guaranteed Surrender Value. So, the impact of new scale proposed under new regulations to the policyholder is minimal.

    Point 3. . Possible Decrease in Premium on LIC Policies

    Though the new mortality table is lighter compared to old mortality table(around 10% lower mortality), there is hardly any difference in the premium. In particular, premiums will not come down . The reason for lowering of premium depends on the actual experience of the mortality. So, for example earlier if companies were using 80% of the old mortality table may use say 88% of new mortality table. So the premium will not come down by using new (lighter) mortality table.


  39. Shashank K S says:

    Hi Manish,
    In our office cafeteria, an LIC agent is trying to sell policies putting same misleading ads as described above. Can i put a copy of your this article next to his counter??

    1. Sure
      please go ahead ..

  40. Sadananda Nayak says:

    Dear Manish,

    As per my understanding service tax is not applicable on ULIP / Endowment policy right? It is applicable only on Term policy. Am I correct in my understanding?

    1. SURESH says:

      Service tax is applicae to both LIP and Traditional policies.

    2. Service tax should be paying on the the Insurance premium even in ULIP or endowment

  41. ritesh says:

    Dear Manish,
    Very thoughtful article ut damage has already been done for me and am planning to go for surrender of all my (7) endowment policies with coverage of approx 26lac. I still have 11 yrs for the first policy to mature. Do you think its aright decision? I have already decided on having a term plan and am not paying my Premium just to get my TERM PLAN before surrendering.
    I will transfer the surrender amount to PPF and add the difference of Policy Premium between old policies and Term Plan to PPF. I worked out the returns which showed how foolish I was before, but then just wondering maybe I made a mistake in the excel sheet calculation? Can you give me link to some of your return calculator where I can e sure about my calculation.
    I just shared this info to make other readers motivate/understand the wisdom i gathered from your blogs (as well as from Ashal,Pattu, Subra etc) and to make right decisions.

  42. girish naik says:

    Dear manish,
    I have a policy jeevan saral, term 35 yrs premium 18375/3 months (72k + per anum ). I had taken this on july 2011,
    now my question is if I pay upto 3 yrs then cose the policy how much will be returning to me. And if I close after 5 yrs full pymnt wat will be the returns. My intentiin is to get atleast the paid amt.. As I m not able to bear such huge amt and it seems like I m going to lot if I close now.. noe I m like “cant pay vant close”. Help please.. Even partoal surrender also leads loss only. Atleast let tje loss be less… Better if get the answer im values(number). Thanks in advance

    1. In any case the returns you would get is not going to be encouraging enough . The best will come only when you complete the tenure . So better close it after 5 yrs . you will have to share with me the exact amount you would get after 5 yrs for understanding the returns !


  43. Bhavesh says:

    Hi Manish,

    Can you tell me about the LIC -Retirement & Enjoy plan, One of the LIC Agent gave me a clear quotation stating to invest 60076 per year from 24 years to 50 years, aftre 51 years LIC will provide 3.1lakhs with 5% annual growth every year with respect to inflation till 75 years….this has Personal & Accidental coverage of 26lakhs and grows to 75 lakhs till your tenure, more over the amount you receive every year from 51 years till 75 years is coming to approximately 1.2 Crore, after 75 years to 100 years your Life coverage applicable of 25 laksh and no pension….

    please let me know your thought on this and have u heard of this plan

    1. Is it given in written by LIC, or just printed by LIC agent on some colorful paper !

  44. rajughote says:

    Dear Manish Sir,
    Thank you very much for sharing such great information….. I want your advise/opinion on following issues,
    1) In 2006 , I have taken Jeevan anand, SA=3 L, term=16 years; Jeevan sathi,SA=2 L, term=16 years ,total premium= 34 K/annum
    2) In 2009, Jeevan Saral,SA=7.5 L ,accidental=15L,Term=35 years,premium=34K/annum
    3) In 2012,LIC term plan,SA=50L,premium=16.5K/annum

    Now after reading your articles, I feel I must come out of policies Sr No 1 and 2 and take one more term plan like sr no. 3 for 1Cr. But confused among HDFC,click to protect,SBI smart shield,kotak e preffred and LIC.

    Purpose: insurance against death, partial or total permanent disability, critical illness

    Can you please suggest me the best term plan. online or offline?

    I have also Group Insurance of 25L by company.

    1. You should take it from HDFC Click2Protect !

  45. Sudhakar says:

    Hi Manish,

    Nice article.
    I have a question. I have a Jeevan Anand policy for tenure of 21 years, for which I am paying 49200 yearly.
    I have already completed 6 years. After reading these financial blogs I realize that its better to stop paying and go for term plan.
    I have asked LIC customer care regarding how much I get if I surrender the policy now.
    They said I will receive approximately 1,62,000.
    So is it better to surrender now, or Will it increase surrender value if I wait till Jan 1st?

    1. Sudhakar says:

      I got the answer form LIC customer care. These rules are for newly applied policies. Existing policies do not have any impact with these rules.

      1. Great ! . Thanks for confirming !

    2. I think you should surrender right now itself if you need money . Else make it paid up

    3. lalit says:

      JEEVAN anand is a polcy offering you insurance for 100 yrs of age. you pay your premium for say 15 yrs and get back your mat value with bonus and FAB after 15 yrs, Even after that you are covered till 100 yrs of age. just consider how little you pay for an insurance till 100 yrs taking into your premia paid and maturity value you get vis-vis pure term plans. Another feature is you can surrender the policy even after maturity is paid i.e. say your policy matured at 55 yrs of Age. and you got Maturity paid then and again you can surrender it at 75 yrs of age. so my take is just continue with policy.

  46. Marie says:

    Great post- more people definitely need to know about this!! I personally am in support of these changes, but I have heard from quite a few other people that they are not.

    1. These changes has already happened and applicable to new policies !

  47. Shivaraj says:


    I am LIC Agent, I would like to know whether 10% Bonus Commission is applicable for the policies with only 5 Year PPT. (Table No. 48, PPT-5 Years)

    1. Hi Shivaraj

      I am not aware of this commission .

  48. manyam says:

    Nice Article again Manish..

    I have a question for your point# 3 “There is a great possibility that the premiums on LIC policies will come down by some margin, because the mortality rates will now be revised by LIC in calculating the premiums”..

    So that means, the premiums will also adjust for term policies as well? And so other than LIC, all other insurance companies already using new mortality rates?

    1. All other insurance companies are already using revised rates , thats the reason their premiums are already lower 🙂

      1. manyam says:

        Hi Manish, thanks for clarification.. so can we expect revised rates also effect on term polices of LIC as well..? or just related to endowment policies of LIC.

        1. Yes you can expect better rates for LIC term plans as well

          1. manyam says:

            ok thanks 🙂

    2. SURESH says:

      Premiums will not come down. Only the theoretical vase of mortality has changed.

  49. giribabu2020 says:

    Hi Manish Ji…I am planning to buy Invest Gain -Platinum policy with FIB rider.This is like LIC Jeevan Mitra Triple cover.But here its quadraple cover and with Fib rider (Monthly 1% of base sum assured(12% pa) paid to nominee for minimum 10 yrs or end of policy term which ever is higher)(Endowment Plan) from Bajaj Allianz Life Insurance co.Iam planning to take 1250000 base sum assured,so in the event of death 50,00,000 is covered and monthly 1% of base sum assured is paid to nominee for minimum 10yrs or end of policy term wh ever is higher.The agent is saying that if i pay for 15 yrs term(limited payment option) it will continue(coverage) for 40 yrs term ( I am 30 Yrs),so at my 70 Yrs age i will get my sum assured plus compound bonus (bonus will be 2.5% on sum assured).I am supposed to pay Rs 58035/- for 15 yrs and at maturity i will be getting almost 35 Lakhs @ 2.5% bonus on SA.so in next 15 yrs iam paying Rs 8,70,525.00 (58035*15yrs) and i will be getting 35 Lakhs(sum assured 1250000+Compound Bonus).The rate of return will be around 5-6%.
    what i am thinking is that i am paying 8.71 lakhs and getting 35 lakhs as a maturity and risk is covered till 70 age.
    Suppose if i take any online term plan for same 50 lakhs i am supposed to pay around 10000 pa.so on the whole iam paying 10000*40yrs=Rs 400000.and i will be investing rest of money in PPF or FD, so i will be getting more than 50 lakhs as a maturity,but regarding FD always there is a risk of falling interest rates.but still i hope i can get 50 lakhs as a maturity.Instead of that if i took this policy i will be getting 35 laks maturity and total risk cover.so iam confused whether to take this policy alone or else Term policy plus FD.Already iam doing 15000 sip per month.i can get very good returns from sip but still i want to scatter my investments,so can i treat thsi policy as debt fund with 35 lakhs returns by paying 8.71 lakhs in 15 yrs or just online term policy and FD.
    If i convert this into sip instead of FD i know i will get more than Fd but already i am doing 15000 sip.we can’t keep all eggs in one basket.becoz market risk is biggest risk.
    Kindly suggest me about this policy or can i take term Plan + FD

    1. Given the complexity of the plan , I would just move to TERM PLAN + FD

      1. Version says:

        Hi Giribabu…thanks for sharing detailed calculations. If everyone were to do similar number crunching before making investment decisions, it would serve the objectives of “Jago Investors”.

  50. Karthik says:

    Thanks for the information. Please keep us updated by posting great articles.

  51. Sandip Sabnis says:

    nice info Manish…Thanks a lot…
    I was about do stop some of policies like Market Plus ….
    Would you suggest to wait till Jan?
    Thanking you in anticipation…

    1. You can wait for it if you feel that it will become a better product after Jan , which I dont think so

      1. Sandip Sabnis says:

        Thanks Manish.
        I asked because of the point above ‘Increase in the surrender value’.

  52. r k raman says:

    i have bima gold money back policy of LIC ,paid 37000/-per annum for twenty lackh cover

    is it continue or drop and take term insurance?

    1. Version says:

      Generally speaking, one should use insurance products purely for covering the risks. Mixing insurance with investment/savings is not such a good idea as the returns on the investment/savings bundled with insurance do not match with what one could otherwise get in pure investment product – due to high charges in the insurance products. In the case of life insurance, term insurance is the only product that is meant to cover only the risk and that’s the product one must go for – even if one feels that one is not getting anything back if there is no claim during the term of the insurance.

      Coming back to your questions –
      1. whether to surrent or continue money back policy depends on how long you have had the policy and how much money you stand to lose if you were to surrender. Reading though the policy you should be able to find our surrender charges, and then you can take a call on whether you are willing to forego that amount. In any case, you should not surrender unless and until you have already bought a term policy. If for any reason your application for term insurance is rejected, you would be left in a lurch.
      2. With the high inflation currently prevailing in Indian market, and no visible sign of situation improving anytime soon, one must go for a term insurance that is 10-20 times of one’s annual gross income. Even if you decide not to surrender moneyback policy, you could re-assess your need for any additional insurance, and go for term insurance for the additional coverage. Buying term insurance online would be the cheapest way of doing so.

      These were my two cents. Please wait for Manish’ opinion before you proceed.



      1. r k raman says:

        thank you for reply ,bima gold continue from last five year
        what will be surrender value?

        1. Your Agent will be able to give you numbers on this

        2. Version says:

          Reproducing below what I found on a site:

          “Surrender Value : After completion three years of premium payment, policy will be eligible for Guaranteed Surrender Value. The guaranteed surrender value under New Bima Gold policy will be 30% per cent of the total premiums paid excluding first year premiums and extra premiums paid.”

          You should be able to calculate surrender value based on this. You should also look at your policy document closely to confirm the surrender value calculation.

          Let me expand on my answer. Decision to surrender or continue should be made based on hard numbers, and not gut feel. Here are the two calculations that would give an apple-to-apple to comparison between the two possible outcomes –

          (A) Continue with the policy – in this case, you should assume that moneyback you receive from time to time is being inversted in PPF and is earning non-taxable interest @8.7% (it keep fluctuating, so you could use any number between 8 and 9 as you deem fit). You would also receive proceeds at the end of the term of the policy, which will include bonus additions as well. Say the total money would have in the kitty at the end of the term is X (proceeds from the maturity of the policy + accumulation in PPF including interests).

          (B) Surrender the policy – in this case, first consider the surrender value being invested in PPF. Also get a quote from any online site for a term insurance plan that has same sum assured and will last as long as your original policy was to last (say original policy was for 20 years and you have already had the policy for five years, then look for 15-year term plan). Now deduct annual premium amount from 37,000. That’s the amount you would have in hand to invest. Again, invest that amount in PPF year-after-year. Assume same rate of interest on this PPF investment as what was assumed in scenario (A). At the end of the term, you would only have PPF accumulation (since term plan does not build any cash value). Say that amount is Y.

          Comparing X and Y would decide for you which way to go. Go with whichever is giving you higher amount.

          I have used PPF as the mode of investment because it offers same tax advantage and therefore keeps the tax element from calculations out. In other words, it keeps the calculations simple.

          1. r k raman says:

            thank u for your valuable suggestion. I have two daughter 1st is 2 year 2 month old 2nd 2 month old ,how to manage financial budget for her education and marriage .I am a rly.serviceman get net payment arrount 30000/-(thirty thousant) per month.i have no other liabilities.

            thank you

            1. What is your risk apetite ? Can you invest for next 20 yrs without worrying much about the money ?

    2. I would have taken term plan if I were at your place , now its your pick

  53. Version says:

    Hi Manish…I have a life insurance question. One of my relatives bought a high-value term insurance. He underwent medical tests, etc. before the policy was issued to him. After couple of years of policy issue, he was diagnosed with a critical illness. He is still living undergoing treatment. This information on critical illness has not been passed on to the insurance company. However, he is worried that after his demise his family might be denied claim as insurance company might think that he had not disclosed his medical condition in the application. There is no foul play on part of my relative at all and he indeed did not know of the medical condition at the time of applying for the policy (though in retrospect he has been living with the condition for several years, i.e., even prior to issuance of the policy). Policy has been in force for five years or so.

    Question is – should he bring his medical condition to insurance company’s knowledge and establish that it was indeed diagnosed couple of years after the policy was issued. Thanks.

    1. Aravind says:

      I think the insurer should not complain. Since the critical illness was not present/diagnosed at the time of the policy writing, it should not matter that it is present now. As long as no relevant information was hidden when the insurance contract was signed, it should be fine.

      Just my thoughts… Over to Manish for his expert comments 🙂

    2. I dont think there is much issue . He will not be denied the claim , while this might be the concern, if they had put all the paper work earlier, they should not worry !

      1. Version says:


      2. Rajeev Rana says:

        There is not at all any problem for claim settlement. But remember that policy should not lapse at any point of time in future. Please pay all future premiums on time and don’t wait for grace period.

  54. Dadasaheb says:

    Very informative

  55. Chetan Ambi says:

    Nice article !!

  56. Varun says:

    Great article ! Very informative..

  57. Ramesh Sabbani says:

    Are these rules applicable only for new policies or old ones too ? Could anybody replay please ? Manish ??

    1. Though I am not yet clear, but common sense says that it should apply to new policies

  58. bharat shah says:

    indeed useful information in apt time , and thoughts in favor of investors , though vested interest and unacknowledged keep noises as always!


    liked very much your article. about LIC

  60. srinivas M, LIC OF INDIA says:

    Dear Manish,

    Good information regarding this new norms with IRDA. But please dont tell miss leading from agents, please mention thare some agents. We are all doing this proffession with truth and trust with the intension of social service. So i feel proud i am an LIC Advisor. But till today i never sale any product without LIC calculations. And one more thing which you are mentioning Mutual funds and Equity related investments, how mwny brokers are giving right information and also how many stocks are giving guaranteed returns? But here LIC is guaranteed for all their investments LIKE Reversionary BONUS, FAB. We declared the bonus rate for the Jeevan anand policy 1 Rs. After the new guidence i think who are raising their voice on LIC and LIC Agents may be quit and they will come to sale the LIC plans. Because LIC always trust Brand No 1, We have some agents fully knowledgable, proffessional, So dont hurt them.

    Srinivas M

    1. Thanks for your concern Srinivas

      When we say agents, it means some agents only 🙂 . Dont take words literally

    2. Vikas R says:

      dear srinivas,

      at present lic having 30 crore investors. lic already cheated all 30 crore investors like myself. now i am unable to surrender my lic policies and not want to pay premium anymore but forcefully need to pay. i am sure there are many more people like me who are doing the same. if we calculate the returns as per inflation rate then we are not getting pricipal itself. as per my experience lic policies are better for lic agents best for lic corporation but worst for lic policy holders. apart for this your online portal is also not transparent as we are unable to see vested bonus in many policies. please comment.

      1. Hi Vikas

        I agree with you, but want to know why didnt you do any kind of calculation or analysis before buying ? When we buy a Fridge or TV for home, we do so much of cost analysis, then why not on a financial product !

  61. vijay says:

    Thanks Manish for the information. Incidentally, at my wife’s office people were scampering to get their LIC policies done ‘coz a “deadline was approaching!” She called me frantically for some suggestions, luckily for me, and thanks to you, it was stale news by then and we could analyze it with a cool head.

    @Dharmendra – Speaking from a investor perspective, your protest is highly misplaced. The advertisement is not inaccurate, but it does encourage a faulty assumption and so it becomes misleading.

    1. Thanks for sharing your case Vijay 🙂

  62. Dharmendra Vadera says:

    Dear Mr. Manish Chauhan,
    You have posted a marketing pamphlet at the bottom of the article with the Caption “MISLEADING ADS PUT OUT BY AGENTS”
    Hear I register my protest. Can you Justify how it is misleading ???
    It was the true Information to the prospects, that “In view of the above notification, LIC’s popular plans may not be available for sale in it’s “PRESENT FORM” after 30/09/2013.
    So, I would like to say, You have misled the public by publishing such pamphlet with “MISLEADING CAPTION”.
    I would like to know your comments regarding this.

    1. Sir , First it is an image from Livemint and not from us . We have just republished it .

      Second, you have to understand the difference between “wrong” and “misleading” . The words written are correct, but are misleading . Misleading means which misleads investors and does not take them into right direction.

      “Invest in stocks and it might give you 100 times return” . What is written is not WRONG, but misleading, because it does give a wrong impression. The pamphlet which you are pointing to tries to project the deadline as some kind of golden opportunity which if investors dont grab, it will hurt them. The problem is in the intention of agents and not the words.

      As their duty and morality, the agents must have told the customers about the internal changes in policy rules like this article does and not use the opportunity to scare more customers so that they rush and buy more policies without understanding whats going on .

      Anyways. thanks for your comment and time to ask .


  63. Beginner says:

    Thanks Manish.

    Does these changes apply to existing policies as well or only to the policies issued from October 1st?

    1. I am not sure on that, but it should not apply to existing policies as per my experience

  64. Ramesh Sabbani says:

    Will the surrender value of old policies as per new rules or not ?

    1. Should not apply to old one’s as per my experience , but not 100% sure on this

  65. Nandji Rai says:

    Dear Manish,
    You could have published it earlier. The damage has already been done. Thanks & Regards. Nandji Rai

    1. Can you share your experience ?

      1. Nandji Rai says:

        All Insurance companies grabbed this opportunity with both hands & mobilized sales force to sell maximum on the ground that Insurance will become costlier due to Service tax effect. I saw the crowd at LIC office, it resembled more than closing month[March] rush.

  66. Rahaman says:

    Hi Manish,
    As always thanks a lot for this article, such a crisp summarized info!!

  67. amol says:

    existing and new lic policies are beneficial to customers… invest more in lic policies to get tension free claims and decent returns.. remember private companies term insurance plans claims not passed easily.. so invest in lic`s endownment plans for long term wealth creation… small term planning will not give you the returns .. any natural calamity lic given hassle free claims..

    1. Thanks for your wisdom Amol .

  68. Veeresh says:

    Possible Decrease in Premium on LIC Policies.
    This applies to only new policies or even to the already existing policies

    1. At this moment , I know that its applicable to new policies

  69. Sricharan says:

    Thanks for the article.

    I have an LIC endowment plan and i have paid premium for 5 yrs and I am planning to surrender it in next month. So would the surrender value be calculated based on the new rules or old rules??

    Will the new rules apply only to the new plans after 1st oct??

      1. Sricharan says:

        Thanks for clarifying manish..

  70. prasanna says:

    Irrespective of IRDA norms revision online term plans will be the best for ever

    1. True ! , agree to that

      1. SURESH says:

        I have my own doubts whether you will see the reduction in premiums for protection plans through online channel.

          1. SURESH says:

            I mean that premiums will not reduce for polices sold through online channel.

  71. Navneet Kumar says:

    Hi Manish,

    A query here. What if I had a policy from before? Do the new rules apply to it or only on policies taken post 01-10-2013? Will the old policies be continued with the old rules and regulations only?


    1. Sandeep says:

      It will only applicable to the new policy that you will take effective from 1st Oct.

      1. Brian DSouza says:

        I guess you may be wrong. Whenever a new bill will be generated even on an existing policy you will have to pay service tax.

    2. I dont think it will apply to old policies

  72. kranti Goyal says:

    Hi Manish,

    Is Service charge applicable to existing policy also?

    Thanks and Regards
    Kranti Goyal

    1. Sumit Aggarwal says:

      NO Friend…. It will be applicable only on new policy.

    2. Yes, it will apply to existing policies also

  73. dinesh jain says:

    Hi Manish,

    In your first point you have mentioned service tax as 3% but service tax in actual is 12.3%, am i missing something here ?

    1. Sumit Aggarwal says:

      Hi Dinesh,

      I am Sumit. Yes Service tax is 12.36 % but in the case of LIC it will be 3.09%. 3 % is Service tax and .09 is Education cess. but please again confirm in lIC office. i am not sure.

      1. dinesh jain says:

        Ok, thank you

      2. SURESH says:

        Hi Dinesh,
        My understanding is that service tax is different for savings-cum-protection plans and pure protection plans.

    2. For insurance policies , its 3.09%

      1. Sandeep Nangrani says:

        Plz find enclosed Service tax for different plans:

        Term plan plus, Rider attached to it:
        ULIP plus, Rider attached to it:

        1st year “12.36%”, and 2nd yr onwards “12.36%”


        Traditional Endowment plus, Rider attached to them:
        Immediate Annuity plans plus, Rider attached to them:

        1st year “3.09%, and 2nd yr onwards “1.545%”

        Sandeep Nangrani.

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