LIC Jeevan Shanti Review -6% IRR Pension Plan

Life Insurance Corporation (LIC) introduced its single premium guaranteed pension plan, LIC Jeevan Shanti, in the year 2018. This plan offers guaranteed pension in two modes, namely immediate annuity and deferred annuity. Initially, when LIC Jeevan Shanti was launched, it got a lot of response from people. The agents were claiming that its deferred annuity plan could generate up to 21% returns.

Nonetheless, before we start with LIC Jeevan Shanti review , let’s understand the actual meaning of the word ‘annuity’.

In simple words, ‘annuity’ refers to pension, where the individual who has opted for the plan receives regular income for a specified tenure or life time.

In addition to all that, the annuity products can be categorized into two types.

Let’s take a look at both the types of annuity so that you can understand better.

Immediate Annuity

As the name suggests, immediate annuity basically means that your pension will start immediately. Therefore, once you invest a lump sum amount in an annuity product, then you will receive the pension immediately from next month onward.

Deferred Annuity

The term deferred in the word ‘deferred annuity’ itself implies that pension would be delayed. Moreover, in the case of deferred annuity, your pension does not start immediately. Hence, it will start after a certain period of time. For example, if you invest a lump sum amount of 20 Lakhs in an annuity product, your annuity may either start after 1-2 years or 20 years depending upon the option you select while making the investment.

Additionally, it’s extremely important to know that there are various options under both, immediate and deferred annuity plans. Nevertheless, the tons of options given under these products make them seem complex to the common man.

On this account, let us try to understand the basic concept of these options.

There are mainly 2 types of annuity options in LIC Jeevan Shanti, whereas the remaining all are just subsets of these options.

Annuity For Life Without The Return Of Purchase Price

In this option, you will get the pension throughout your life but the amount which you invest in the beginning will not be returned. Besides, there a number of options, namely single life, joint life, guaranteed annuity for 5 years/10 years and so on. The point main here is that although you’ll receive pension throughout your life, you won’t be able to get your initial investments back. Keeping all that aside, the annuity rates are high in these types of plans.

Annuity For Life With The Return Of Purchase Price

When you buy annuity products for life with return of purchase price, your nominee gets the initial investment amount after your death. Now the amount maybe 100% or 110% of the purchase price, as per the product specifications.

LIC Jeevan Shanti – Details and Features

In a nutshell, LIC Jeevan Shanti is a guaranteed pension plan with two major options namely, immediate annuity and deferred annuity.

The minimum age limit to opt for the pension plan is 30 years whereas the maximum age is 85 years in an immediate annuity plan. However, it must be noted that, in the case of option F, the maximum age limit is 100 years. Coming to deferred annuity products, the maximum age limit is 79 years.
The minimum investment is 1.5 Lakhs and there is no limit on maximum investment. Therefore, you can invest as much as you want in an annuity product.
The minimum deferment period is 1 year whereas the maximum is of 20 years.

If you want to read about the features, you can follow the given link for more details.

https://www.licindia.in/Home/jeevan-shanti

LIC Jeevan Shanti Review

Now, let us come to the LIC Jeevan Shanti Review. Now there are some common questions that arise in the mind of almost every individual such as – Whether you should buy the product or not? Are the returns actually to the tune of 22%? Or it just a well-planned marketing gimmick to sell the product to an ignorant investor?

Nobody seems to be interested in purchasing an annuity plan without return of purchase price, at least in India.

Now, let us proceed and talk about annuity plans with returns of the purchase price. However, you must remember that pension plans without the return of purchase price offer much better returns.

As far as the immediate annuity is concerned, Jeevan Akshay is indeed a better option. I will definitely review that in the coming time.

Jeevan Shanti has been mainly designed for deferred annuity.

The returns of LIC Jeevan Shanti are bad. But, LIC agents are trained to entice potential customers in such a manner that you will easily fall for the so-called ‘promised returns’. They make the returns appear as high as 22% for a 20-year deferment period while the actual returns are not even 6%.

BELIEVE ME, you are just being fooled big time.

My friend, who’s a LIC agent, called me one day and desperately wanted to meet me. He suggested me to purchase the Jeevan Shanti plan immediately as the returns were as high as 21.34%. Not only that, he came with a fully prepared Powerpoint presentation to show the features and returns of the plan to. Here is one slide of his the Powerpoint presentation (PPT) he showed me.

He started explaining to me, the concept of deferred annuity. Furthermore, he told me that I would get returns in the range of 22% if I invest the amount for 20 years. The rates will go down if the tenure of the policy is reduced, my friend told me.

Here is the 2^nd slide which he showed to me. He further continued that if I invest 10 lakhs now, I will start getting a pension of 17,062 per month or 2,13,400 per year after a period of 20 years. Hence, I’d receive the pension along with returns of 21.34% per annum.

My friend added that – even the best mutual funds scheme cannot offer such kind of returns. And, that is exactly the reason why LIC is the best company.

I requested my friend to grant me some time to think over it. But he was so persuasive that he wanted me to purchase the plan right away. This is another skill common amongst all LIC agents, that – they are just too good at it. Irrespective of how convincing my friend sounded, I didn’t buy the product because I knew that it could offer returns only up to 6%.

But if you are wondering that how come the returns are only 6%, let me explain with an excel spreadsheet presentation.

For example, suppose you invest 10 Lakhs today for an immediate pension of 2,13,400 after 20 years, here is the exact rate of return, you would get after 20 years.

As you can see you will get returns up to 6% only. So is it worth investing?

Absolutely not.

Another major reason to not invest in this product is that the return rates will never increase. Even you receive this amount as pension for the next 100 years, the return rate will remain 5.9% only. Thus, the IRR would be the same.

What if, I invest the same amount in mutual funds?

So, now let`s see and analyse how much returns I would get if I invest the same amount in mutual funds.

Also read: Should I Surrender Jeevan Anand Policy?

Now, if you choose to withdraw your expenses of 2,13,400 for 20 years and then again invest the remaining amount in mutual funds, what would happen?

If you take a closer look at these values, you’ll see that many generations can spend this amount of 2,13,400 per year and they still will grow rich.

People are investing in this annuity product with the hope that they would get around 22% returns annually whereas the actual returns are only 6%.

Moreover, there can be many arguments:

Mutual funds are risky
You will not receive 6% returns after a time period of 20 years.

I wholeheartedly agree that equity mutual funds are risky. Nonetheless, if you invest for your long term financial goals and review it simultaneously, the returns are much better.

Another important thing to keep in mind is that the 6% returns are not inflation-adjusted.

Then, Why do I need to lock my money for so many years when returns are just 6%?

Taking all the facts and figures into consideration, here is my final word on LIC Jeevan Shanti Review –

Do Not Purchase.