A REVIEW OF THE NEW PLAN -- JEEVAN SARAL
Under a life insurance policy there are two types of Sum Assured. The Sum Assured payable
on maturity and the Sum Assured payable in case of death claim. Under most of the Plans
both are equal. Under some plans (ex : Jeevan Mitra Double Cover) the sum assured payable
on death is twice the sum assured payable on maturity. It is thrice in the case of Jeevan Mitra
Triple Cover.
Once the customer chooses the Plan and the Sum Assured required on maturity,
_ The Sum Assured payable on death gets automatically determined, whatever be the age
and policy term.
_ The Premium Rate can then be obtained from the agent’s manual, on the basis of age and
policy term.
Under the Jeevan Saral Plan, the customer has to first decide the amount of premium he wants
to pay per year. Once the Premium is chosen,
_ The Sum Assured payable on death gets automatically determined, whatever be the age
and policy term. This is called the Sum Assured under the policy.
_ The Sum Assured payable on maturity can then be obtained from the agent’s manual on
the basis of age and policy term.
Suppose a person decides to pay a premium of Rs.1200 per year. The Sum Assured payable
on death will then be Rs.25000, whatever be the age and policy term. The Sum Assured
payable on maturity can then be obtained on the basis of age and policy term.
Why this odd amount, 1200 per year ?
It is the same as Rs.100 per month. In other words, by paying Rs.100 per month, a person can
get a Risk Cover of Rs.25000, whatever be the age and policy term.
What is the advantage of starting from the premium and finding the Sum Assured
payable on maturity, instead of starting from Sum Assured and finding the Premium ?
The advantage can be seen when we come to Surrender Values.
A Unique Feature
There is also a Unique Feature under Jeevan Saral. In case of death claim, in addition to the
Sum Assured payable on death, All Premiums Paid, (excluding the first year premium, extra
premiums and premiums for rider benefits), will be refunded. This is the first time that such a
feature has been introduced. The result is a continuously increasing Risk Cover from the
second year onwards.
Is Jeevan Saral a With Profit Plan ?
YES. But bonus will not be declared each year as under other plans. Only “Loyalty
Addition” will be given. The Loyalty Addition is payable only if premiums have been paid
under the policy for atleast Ten Years and Ten Years have been completed since the date of
commencement. This Loyalty Addition is payable even when a policy is Surrendered and
also under Death Claim.
Paid-up and Surrenders
A policy will acquire paid-up value provided premiums have been paid for atleast three full
years. Once a policy acquires a paid-up value, it can be surrendered. But there is a unique
feature when it comes to Surrenders.
•Provided premiums have been paid for five full years, a Surrender will be treated as a
maturity for a reduced policy term. What does this mean ?
•Take for example a policy for term 20, being surrendered after premiums have been paid
for 12 years. This will be treated as if the policy was originally taken for a term of 12
years, and the maturity value corresponding to term 12 will be paid. Since premiums have
been paid for 12 full years, the Loyalty Addition corresponding to term 12 will also be
paid.
•What is the significance of this novel provision ?
It is quite simple. A policyholder need not decide the policy term at the time of
completing the proposal. He/She can first opt for the maximum permissible term
corresponding to his/her age, and postpone the decision on a suitable term to a convenient
date in future.
•How does this work ?
Take, for example, a person aged 30. He can initially opt for the maximum term
permissible, 35 years. If, after 17 years, he decides that the policy term can be 17 years,
he can surrender the policy. He can even decide to have a term of 17 years and six
months. Since the Risk Cover (Sum Assured Payable on death) is independent of age and
term and policy surrender will be treated as policy maturity, there will be NO LOSS due to
the postponement of decision.
In this sense, Jeevan Saral can be called a Flexible Term plan.
•One can now appreciate the advantage of starting from premium and going to the sum
assured payable on maturity.
Can a person have multiple terms for the same policy ?
The answer is YES. Let us see how this is possible.
•Consider, for example, a person paying a premium of Rs.700 per month (i.e. Rs.8400
per year) under his Jeevan Saral policy and initially takes the maximum term
permissible (say, 30 years). The initial Risk Cover will be for Rs.175,000, increasing
by Rs.8400 each year from the second year onwards.
•Later, he decides to have a term of 12 years under One Seventh of the policy. It will be
presumed that there were two policies originally, One with the annual premium of
Rs.1200 for a term of 12 years and another for an annual premium of Rs.7200 for a
term of 30 years. At the end of 12 years, the Maturity Value, along with Loyalty
Addition, will be settled under the portion for term 12 years. Under the balance policy,
the annual premium will now be Rs.7200, Risk cover Rs.150000 and Term 30 years.
If death claim occurs at any time later, say during the 14th year, the claim amount
payable will be,
[Rs.150,000 + (14 - 1) x 7200 + Loyalty Addition for term 15 years).
•After another 3 years, he decides that under another Two Seventh of the original
policy, the term should be 16 years. It will be presumed that there were three policies
originally, One with the annual premium of Rs.1200 for a term of 12 years (which has
already matured), another for an annual premium of Rs.2400 and term 16 years, and
another for an annual premium of Rs.4800 for a term of 30 years. At the end of 16
years, the maturity value corresponding to annual premium Rs.2400 and term 16 will
be paid along with the Loyalty Addition. Under the balance policy, the premium will
be Rs.4800 and Risk Cover Rs.100000. If death claim occurs during, say 20th year,
the claim amount payable will be,
[Rs.100,000 + (20 - 1) x 4800 + Loyalty Addition for term 20 years).
•Later he decides that under the balance policy, the term should be 26 years. At the end
of 26 years, the policy will be closed and the maturity value along with loyalty
addition, corresponding to annual premium of Rs.4800 and term 26 years will be
settled.
•It can thus be seen that the decision regarding policy term need not be taken at the
outset. Take the maximum permissible term first and take the decision, in
instalments, at later dates, without any loss. It is like Partial Surrenders, with the
surrender being treated as maturity.
•It can also be said that with this facility, Jeevan Saral is almost like a Flexible Money
Back Plan, with the customer choosing the dates of survival benefits and the amount
of survival benefits. Only almost, not exactly equal to. Under the Money back plan,
the Risk Cover remains the same throughout. But, in this case the Risk Cover reduces
with each maturity benefit taken. This can however be compensated by taking a
suitable Term Rider along with the main policy.
The agents dealing with high-end customers can readily appreciate the value of this
flexibility. But, one word of caution. It may also be a source of confusion in the case
of customers not much interested in such flexibility. So, use this feature with utmost
caution while talking to a prospective client.
Are there any Restrictions on such Partial Surrenders ?
YES. But only a few and very reasonable restrictions. These are,
•The reduced annual premium after the partial surrender, excluding rider and extra
premiums, should not be less than Rs.3000, where the admitted age under a policy is
less than 50 and, Rs.4800 when the admitted age is 50 or above and should be a
multiple of 600 (i.e. the equivalent monthly reduced premium has to be a multiple of
50)
•The amount by which the annual premium can be reduced for the purpose of a partial
surrender has to be a multiple of 600 and should not be less than Rs.1200.
•A minimum waiting period of one year is required between successive surrenders.
•When a partial surrender is made and the Sum Assured payable on death gets reduced,
the sum assured under Accident and Term rider benefits, if any, will get
correspondingly reduced.
•Before making a partial surrender, any outstanding loan under the policy has to be
repaid in full.
Rider Benefits
Accident and Term cover can be availed of as rider benefits. The sum assured under rider
benefits has to be the same as the sum assured payable on death under the main policy.
Loyalty Addition
A policy will be eligible for loyalty addition only after payment of premium for full 10 years
and after completion of 10 years from date of commencement. A loyalty addition is payable
on death or maturity or when a policy is surrendered. If a death claim occurs in the 10th year
of a policy, provided the policy is in force at that time, it will be eligible for loyalty addition
even if the premium for the 10th year has not been paid in full.
When will the Loyalty Additions be declared ?
The loyalty additions will be declared after each actuarial valuation. It will be based on policy
term. In the case of death claim and surrenders, and in the case of policies under paid-up
condition, the period for which premiums have been paid will be taken as the policy term.
For example, suppose a policy taken in the year 2004 becomes paid up in the year 2015 after
payment of premiums for 11 years. It is then surrendered in January 2017. The loyalty
addition under the policy will be that corresponding to term 11 as declared in the valuation
results declared in September 2016. That is, the valuation just preceding the date of
surrender. What will be the surrender value? The surrender value as on the date of lapse (i.e.
due date of first unpaid premium) will be equal to the maturity value corresponding to the
policyholder’s age at entry and Term 11. Suppose the period between the date of lapse and
date of surrender is 1 year and 9 months. Interest (compounding yearly) will be paid on the
surrender value for a period of 1 year and 9 months. To this will be added the loyalty
addition. The rate of interest to be used each year for this purpose will be declared at the start
of the Financial Year.
Why only Loyalty Addition and not the Conventional Regular Bonus ?
It is technically difficult to combine regular yearly bonus with the flexibility built into the
product. So, the concept of Loyalty Addition has been introduced instead of the regular
bonus. Some may feel, going by the experience of recent years, that amount given by way of
loyalty addition may be negligible. It will not be so in the case of Jeevan Saral. Actuarial
analysis will show that the actual loyalty addition that can be paid will not be less than the
total regular bonus payable on death claim, surrender or maturity. It is only a change of
concept. The policyholder will be the ultimate gainer by this change of concept. One has to
keep the policy in force only for ten years, and not till maturity, to be eligible for loyalty
additions. Freedom has been given to surrender the policy at any time after 10 years without
any loss.
In the case of surrenders within ten years and death claim within nine years, there will be no
terminal bonus. In the case of the latter, since all premiums except the first year premium are
being refunded along with the sum assured, paying also loyalty addition will be difficult. In
the case of death claim after nine years, after refunding all premiums (except the first year
premium) along with the sum assured, expenses are being met and payment of loyalty
addition becomes possible.
Miscellaneous Issues
a) In all the examples given under “Surrenders”, the number of years for which premiums
have been paid was taken as integral number of years. Suppose a person desires to
surrender the policy after paying premiums for 11 years and 3 months. Then find the
maturity values corresponding to terms 11 and 12. For term 11years and three months the
surrender value can be obtained on pro-rata basis from these two maturity values. That is,
it will be equal to,
_ Maturity value for term 11 +
_ One fourth of the difference between the maturity values for terms 12 and 11 +
_ Loyalty addition corresponding to term 11.
b) If premiums have been paid for three full years, then surrender value will be equal to 80%
of the maturity value corresponding to term 3.
c) If premiums have been paid for four full years, then surrender value will be equal to 90%
of the maturity value corresponding to term 4.
d) The minimum term under this plan is 10. But, for the purposes of calculating the
surrender value, the Sum Assured payable on maturity has been given for terms 3
onwards.
e) There is no rebate for high sum assured. But, rebates of 1% and 2% are given for halfyearly
and yearly modes respectively.
