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Life Insurance Corporation of India (LIC) is India's largest life insurance company, owned by the Government of India, offering a wide range of life insurance products to over 29 crore policyholders. LIC's plans include Term Insurance (pure protection), Endowment Plans (savings + insurance), Money Back Plans (periodic payouts), Whole Life Plans, ULIPs (market-linked), and Pension Plans. The most popular traditional plans include Jeevan Anand (endowment with whole life cover), Jeevan Labh (limited premium endowment), Tech Term (online term plan), and Jeevan Umang (whole life with annual survival benefits). For traditional endowment and money back plans, the premium is determined by a combination of factors: sum assured, age at entry, premium payment term, and plan type. LIC declares Reversionary Bonuses (added annually as a percentage of sum assured), Final Additional Bonus (FAB, declared for older in-force policies of 15+ years), and for some plans, Loyalty Additions. The total maturity benefit = Sum Assured + accumulated bonuses + FAB. Death benefit is generally the higher of Sum Assured or 10 times the annual premium. Premiums can be paid annually, semi-annually, quarterly, or monthly (monthly has a loading of 3% extra). LIC premiums paid qualify for Section 80C deduction up to ₹1.5 lakh. Death benefits are tax-free under Section 10(10D). Maturity benefits are tax-free under 10(10D) only if the premium does not exceed 10% of sum assured (for policies issued after April 1, 2012); otherwise maturity is taxable.
Maturity Benefit = Sum Assured + (Simple Reversionary Bonus × SA / 1000 × Policy Term) + Final Additional Bonus; Premium = Tabular Premium Rate per ₹1,000 SA × SA/1000 × Modal Factor; Surrender Value = Paid-Up Value × Surrender Value Factor
- 1Choose the LIC plan type based on financial goals: term plan for pure protection (low premium, high cover), endowment for savings + protection, money-back for periodic liquidity, whole life for lifelong cover with maturity.
- 2Determine the sum assured (SA) needed — for term insurance, follow the '20× annual income' rule; for endowment, the SA determines the savings component; minimum SA varies by plan (typically ₹2-5 lakh for traditional plans).
- 3Calculate the premium: LIC uses tabular premium rates (per ₹1,000 of sum assured) based on age, plan, and term; use LIC's official premium calculator on licindia.in or ask an authorised LIC agent.
- 4Choose the premium payment mode: annual (cheapest), semi-annual (2.5% loading), quarterly (3% loading), monthly via NACH (3% loading); some plans like Jeevan Labh offer limited premium payment terms (pay for 10 years, cover for 25 years).
- 5Pay premiums regularly — lapsation before 3 years forfeits the entire premium; after 3 years, the policy acquires a 'paid-up value' and 'surrender value' if premiums are discontinued.
- 6Track bonuses: LIC declares Simple Reversionary Bonus (SRB) annually — currently ₹35-55 per ₹1,000 SA for popular plans; FAB is declared for policies running 15+ years; both add to the maturity amount.
- 7At maturity: receive Sum Assured + accumulated bonuses + FAB tax-free (if premium ≤ 10% of SA); for death claims, the nominee receives higher of SA or 10× annual premium plus accumulated bonuses — fully tax-free.
Jeevan Anand continues whole-life cover at SA after maturity — unique feature; not suitable as pure investment
Jeevan Anand is a participating endowment plan. On survival to maturity, you receive SA + bonuses; your whole life cover for the full SA continues without further premium. On death after maturity, nominees receive the full SA again. The plan has a low effective return (5-6% IRR) compared to ELSS or PPF.
Pay for 16 years, get coverage for 25 — better premium efficiency; IRR approximately 5.5-6.5%
Jeevan Labh is a limited premium endowment. Premiums are paid for a shorter period (16 years), but coverage and maturity benefit continue for the full 25-year term. Accumulated bonuses over 25 years significantly enhance the maturity amount.
Tech Term is LIC's online term plan — significantly cheaper than offline/agent term plans
LIC Tech Term (Plan 854) is a pure protection plan — no maturity benefit if the policyholder survives. The premium is much lower than traditional plans because there is no savings component. ₹1 crore life cover for ₹12-15K/year is excellent value for protection.
Surrendering traditional LIC plans mid-way incurs significant losses; hold to maturity for best returns
Surrender value is typically far below the total premiums paid, especially in early years. The Guaranteed Surrender Value (after 3 years) = 30% of premiums paid (excluding first year premium and riders). Special Surrender Value may be higher based on bonuses accrued but still unfavorable.
Computing the effective IRR of existing LIC endowment policies to decide whether to hold to maturity, pay-up, or surrender and reinvest.
Comparing the tax efficiency of LIC traditional plans vs ELSS vs PPF for Section 80C utilisation.
Estimating the maturity benefit of existing LIC policies for retirement corpus planning alongside EPF, PPF, and NPS.
Term insurance coverage assessment — computing the adequate life cover needed (typically 10-20× annual income) and comparing LIC Tech Term vs private insurer costs.
Surrender value estimation for financial emergency planning — knowing the approximate surrender value helps decide whether a policy loan or surrender is the better option during financial stress.
LIC Section 10(10D) — High Premium Policies
If the annual premium exceeds 10% of Sum Assured (for policies issued after April 1, 2012) or 20% of SA (for policies for disabled persons/severe diseases), the maturity benefit becomes taxable. LIC deducts TDS at 5% if the maturity amount exceeds ₹1 lakh. The policyholder must include the net maturity amount in their ITR. Term insurance death benefits remain always tax-free regardless of premium.
Paid-Up Value vs Surrender Value
If premiums are stopped after 3+ years but the policy is not surrendered, it becomes a 'Paid-Up Policy.' The Sum Assured is reduced proportionately (Paid-Up SA = Original SA × premiums paid / premiums payable). Bonuses earned up to that date remain. The policy continues in force at the reduced Paid-Up SA till maturity or death. Surrender Value is what you get if you close the policy entirely — typically less than the Paid-Up Value.
LIC Riders
LIC offers optional riders (add-ons) to base policies: Accident Benefit Rider (additional SA if death due to accident), Premium Waiver Benefit (premiums waived if policyholder becomes permanently disabled), Critical Illness Rider, New Term Assurance Rider (additional pure term cover). Rider premiums are separate and also qualify for Section 80C deduction. Choosing riders adds flexibility to the base plan without buying separate policies.
LIC Agent vs Online (Tech Term, Bima Digital)
Offline LIC plans purchased through agents include the agent's commission in the premium loading (2-5% of first-year premium + 2-5% renewal). Online plans like Tech Term and the online endowment options (LIC's website) have lower premiums because there is no agent commission. For pure term insurance, Tech Term's online premium can be 20-30% lower than the equivalent agent-sold term plan. Where possible, purchase LIC plans directly online.
| Plan | Type | Premium Term | Maturity Benefit | Death Benefit | Approx IRR |
|---|---|---|---|---|---|
| Jeevan Anand (915) | Endowment + Whole Life | Full term | SA + Bonus | SA + Bonus (whole life continues) | 5-6% |
| Jeevan Labh (836) | Limited Premium Endowment | Shorter than term | SA + Bonus | SA + Bonus | 5.5-6.5% |
| Tech Term (854) | Online Term Insurance | Full term | None (term plan) | ₹50L to ₹3Cr | NA (protection only) |
| Jeevan Umang (945) | Whole Life + Annual Survival Benefit | Till age 100 | Survival + SA at death or 100 | Higher of SA or 10× premium | 4-5% |
| New Endowment (914) | Basic Endowment | Full term | SA + Bonus | SA + Bonus | 4.5-5.5% |
| Bima Jyoti (860) | Guaranteed Addition Endowment | Full term | SA + Guaranteed Additions | Higher of SA or 105% premiums + additions | 5-6% |
What is the difference between LIC Jeevan Anand and Jeevan Labh?
Jeevan Anand (Plan 915) is a regular premium endowment plan where you pay premiums for the full policy term and receive SA + bonuses at maturity; uniquely, the whole life cover for the full SA continues after maturity at no extra premium. Jeevan Labh (Plan 836) is a limited premium endowment plan — you pay for a shorter period (e.g., 16 years) but coverage and maturity benefit continue for a longer term (e.g., 25 years). Jeevan Labh is generally preferred for its premium efficiency.
What are LIC's reversionary bonus rates?
LIC declares Simple Reversionary Bonus (SRB) annually — it is a percentage of the Sum Assured per ₹1,000 of SA. Recent SRB rates: for endowment plans (Jeevan Anand, Jeevan Labh) — approximately ₹35-55 per ₹1,000 SA per year. Final Additional Bonus (FAB) is declared for policies running 15+ years and significantly boosts the maturity payout — approximately ₹200-700 per ₹1,000 SA depending on policy type and term. Bonus rates are announced annually and are not guaranteed.
Is the LIC maturity amount taxable?
Under Section 10(10D): LIC maturity amount is tax-free if the annual premium does not exceed 10% of the Sum Assured (for policies issued after April 1, 2012). For policies where annual premium exceeds 10% of SA, the maturity amount is taxable (TDS deducted by LIC at 5% if total sum exceeds ₹1 lakh). Death benefit is always tax-free regardless of premium-to-SA ratio. This 10% rule effectively restricts 80C tax benefits only to plans where SA is at least 10× the annual premium.
What is the grace period for LIC premium payment?
LIC allows a grace period of 30 days for annual, semi-annual, and quarterly premium payment modes; 15 days for monthly mode. If the premium is not paid within the grace period, the policy lapses. A lapsed policy can be revived within 5 years of lapsation by paying all outstanding premiums with interest (typically 9-10% per annum compound). Policies lapsed before 3 full annual premiums are paid have no surrender value.
How is LIC premium different from ELSS for Section 80C?
Both LIC premiums and ELSS investments qualify for Section 80C deduction up to ₹1.5 lakh. Key differences: LIC premium provides life cover (critical for dependents); ELSS provides only investment with no insurance. Returns: ELSS offers historically higher returns (12-15% CAGR) vs LIC traditional plans (5-6% IRR). Liquidity: ELSS has 3-year lock-in; LIC traditional plans have multi-year terms with significant surrender penalties. For pure tax saving + investment, ELSS is superior; for tax saving + protection, term insurance + ELSS/PPF is generally better than traditional LIC endowment.
What is the LIC loan facility?
Once a LIC traditional policy has accumulated a surrender value (after 3 years of premium payment), the policyholder can take a loan against the policy. The loan amount is up to 90% of the surrender value. The interest rate on policy loans is typically 9-11% per annum. If the loan is not repaid, the outstanding loan + interest is deducted from the claim amount (death benefit or maturity value). Policy loans are a good emergency liquidity option rather than surrendering the policy.
What is the difference between sum assured and death benefit in LIC plans?
Sum Assured (SA) is the face value of the policy — the guaranteed amount the policyholder or nominee receives. Death benefit is the total amount payable to the nominee on death — this includes SA plus all accumulated bonuses. For some plans, death benefit is the higher of SA or 10 times the annualised premium, whichever is higher. Effectively, in traditional plans, the death benefit during the policy term includes SA + bonuses accrued up to the date of death.
Should I surrender my old LIC policy and invest in mutual funds?
This is a common question. In most cases: if a traditional LIC policy has been running for less than 5-7 years, surrendering means significant loss of premiums. If the policy has been running 10+ years with substantial bonuses, it may be worth holding to maturity as the returns improve with time. For older policies (pre-2012 era) with better bonus rates, holding often makes sense. The right approach is to buy adequate term insurance separately (if not done), stop new LIC endowment investments, and invest future savings in ELSS/PPF/NPS for better returns.
Pro Tip
The best use of LIC for most investors is: buy an adequate online term plan (LIC Tech Term or private insurer term plan) for life protection at the lowest cost, and invest the savings (what you would have paid for an endowment plan minus term plan premium) in ELSS or PPF for Section 80C benefit and superior returns. This 'buy term + invest the rest' strategy consistently outperforms traditional endowment plans over a 15-20 year horizon.
Did you know?
LIC of India was founded in 1956 by the government nationalising 154 private insurance companies. It manages assets exceeding ₹45 lakh crore (USD 545 billion) — making it not just India's largest insurer but also one of the world's 10 largest insurance companies by assets. LIC's IPO in May 2022 was India's largest ever at ₹20,557 crore. Despite 60+ years of operation, LIC still controls approximately 61% of India's life insurance market by number of policies.
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