Jeevan Saral Vs Term Insurance and MF

My Friend Anand recently bought the Jeevan Saral policy, so I thought of analyzing his investment. It is very good policy and has won the Prestigious GOLDEN PEACOCK award for the best features like higher cover, smoother return , liquidity and lots of flexibility. But some where we need to Self Evaluate , is it really worth?

Anand took the basic cover of 15lacs and his annual premium came out to be 72K i.e. 6K per month. The maturity amount after 15 years will be 2675922 @10% I.R.R. (Internal Rate of Return)

Annual Investment	Maturity Amt.	Basic Insurance cover	Accidental Cover	Term
72000	2675922	1500000	3000000*	15 year

*Accident Benefit & Disability is allowed (with extra premium)

Now let’s see if we can invest the same amount in a better way for Anand.

First let’s take a Term Insurance for Anand’s life cover. Let’s take a Term Insurance of 50lacs for maximum tenure of 30 yrs Premium would be close to 13K. Now after investing 13K for life cover we will be left with 59000 out of 72K.

Now let’s put 5000 in PPF each year for Anand, so we are left with the 54K. Now let’s do a SIP for Anand of 54K that will be 4.5K per month. Let’s diversify it into 3 Mutual funds so that will be 1.5K per mutual fund per month.

So the total accumulation at the end of 15 yrs will be around 1.45lac from PPF and 30.45lac from mutual fund (Historical return from mutual has been more than 17-18% and last 5 yrs return are more than 25%) . Let’s assume just 15% and not 18-20%, even though it’s possible. We will take pessimistic view and just assume 15% return for mutual funds over a long term view of 15 years. So we have total 31.9lacs corpus build in 15 years.

List of few Best Tax saving mutual funds

Name of MF	Year since launch	Return since Launch	Return in last 5 year
Sundaram BNP Paribas Taxsaver	11(1999)	22.73%	25.89%
HDFC Tax Saver-G	14(1996)	35.25%	25.27%
Magnum Taxgain-G	17(1993)	19.62%	26.45%

So now you can see that the maturity amount at the end of 15 Year is better in case of Term Plan + investment in mutual fund. This can be even better if we invest the amount of PPF also in mutual fund but it is said that your funds should be diversified so we did put some amount in PPF for that matter.

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Few more benefit which we can think of are

• If Anand gets in to some problem and is unable to pay the annual amount still he can just pay 13K for the Life cover and stop the SIP in mutual funds. Doing this he can easily keep covering his life risk which will give protection to his family in case of casualty.

• If Anand dies due to natural cause and not by accident then to his family gets the full amount of 50lacs for which he is covered which is more than 3 times risk amount covered by Jeevan Saral policy.

• In case of casualty the family of Anand not only gets the Insured amount of 50lacs but also gets the amount accumulated in PPF and Mutual funds.

• In case Anand requires money for any emergency requirement then he can withdraw the money from mutual fund easily without having any issue of policy being discontinued or something else happening in policy like less cover or some other clause implied by policy as per agreement for which he might get less than the assured amount etc.

To know more about power of compounding Read Here