After the less than expected returns from Jeevan Astha policy, LIC has come out with a money back policy with a tenure to choose from 9 years and 12 years.

The main plank which LIC is banking on the plan is that of guaranteed returns which in 9 year term is 6.5% of sum assured and 7% of SA in 12 year policy with the premium paying term being 9 years in both the cases.

The policy also gives regular 3 yearly survival benefits and claims that the rate of return is similar to the returns given by LIC Jeevan Astha policy.

But on using a simple IRR function on MS Excel, it can be easily concluded that the policy gives very low returns contrary to the claims of LIC.

For a 35 year old, with the premium amount, the return for a 9 year policy works out to be just 2.56% while for 12 year policy, figure is just 3.88%. The returns are compounded annual returns calculated after factoring all the premium payments, survival benefits and maturity benefits.

The only thing it ignores it is the component of Loyalty Addition, which is payable on maturity and is not guaranteed. This addition is usually little and does not make much difference to the final calculations.

For the policy to have compounded returns equal to the guaranteed addition figure, the policy premium amount needs to be around 20% lower than the tabular premium amount. But this is not the real case, as such returns vary significantly to the guaranteed returns figure.