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Jeevan Aadhar, Jeevan Vishwas -- Support for disabled dependents

K. Nitya Kalyani

ANXIETY about the future _ ours, and that of our dependents _ is a key investment motivator. In these competitive times when jobs are no longer as secure, there is extra urgency and tension about the future. Another anxiety is the responsibility towards handicapped dependents. Though there is growing awareness that the handicapped have to be given their due, the odds are stacked against them in many ways. if the physical handicap shuts out certain avenues others get closed because of perceptions.

To mitigate some of this uncertainty, the Life Insurance Corporation of India (LIC) has come out with two policies for guardians of handicapped persons who wish to provide them financial security in the event of their (guardians') death.

Jeevan Vishwas, a special plan for the handicapped, introduced about six months ago. Like Jeevan Aadhar, it helps to decide on a level of financial security for the handicapped dependents.

Jeevan Vishwas

This policy covers the life risk of the proposer _ parent or guardian of a physically- or mentally-handicapped person _ and provides a regular income to the dependent. The policy pays the basic sum assured along with the accrued guaranteed additions and loyalty additions if the proposer survives the maturity date of the policy or on his death when the policy is in force.

In either case, the payment will not be made in lumpsum. Only 20 per cent of the basic sum assured, along with the additions accrued (called the notional sum assured or NSA), will be paid. The guaranteed addition is at Rs. 60 per Rs. 1,000 of basic sum a ssured for each completed policy year. Loyalty additions may be available, subject to certain conditions.

The remaining 80 per cent will be paid only in the form of an annuity. That is, payments will be paid by LIC periodically to form a regular income for the handicapped person for whose benefit the policy has been taken.

There are various modes of payment the proposer can choose from. A regular income for life, or a regular income assured for five, 10 or 15 years, and then for life, and a third choice is a regular income for life with return of notional purchase price (8 0 per cent of the basic sum assured along with the additions).

The choice of the period has a bearing on the amount of the annuity with a longer `certain' period meaning lower monthly payments. The payments from the LIC stop with the death of the beneficiary of the policy.

In case the handicapped dependent dies before the proposer, and in the time when the policy is in force, the latter can either surrender the policy if it has acquired surrender value at that time. Or, he can opt to continue with it and keep making premiu m payments. He can also opt for either lumpsum benefits or a 20 per cent lumpsum followed by an annuity with the remaining 80 per cent. If the proposer also dies before the maturity of the policy, the benefits go to his nominee. The policy also has an ac cident benefit on the annual premium option.

The policy is available for a minimum sum assured of Rs. 50,000 which can be scaled up in multiples of Rs. 25,000.

The proposer has to be between 20 and 65 years of age at the time of taking the policy. The policy term is between ten and 40 years while the premium paying term is between ten and 25 years. It is also possible to make a single premium payment.

Jeevan Aadhar

Jeevan Aadhar is also a policy that covers the life risk to the proposer and pays an annuity to the handicapped dependent or to any person or a trust for the benefit of the dependent.

This policy varies slightly from Jeevan Vishwas in that the guaranteed additions is Rs. 100 per Rs. 1,000 sum assured for each completed policy year and will accrue till the proposer is 65 or until his death, whichever is earlier.

This policy also carries a `terminal addition,' like loyalty addition and will depend on the working experience of the LIC under this policy. It will apply only if the policy is in full force and if premiums are paid for at least 10 years.

Jeevan Aadhar too provides the same 20 per cent (of the notional sum assured) lumpsum payment on the death of the proposer, the remainder going towards providing an annuity for 15 years assured and after that for the life-time of the handicapped person. The flexibility introduced by Jeevan Vishwas is a choice of varying annuity periods (five, 10 and 15 years) and the option of annuity with return of NSA. The lumpsum is not available if the proposer outlives the policy term and only the annuity is paid.

If the dependent dies before the proposer and if the policy is in force, the proposer gets a deal worse than that under Jeevan Vishwas. He only gets to keep the policy for a reduced paid-up sum assured, or he can take a refund of the premiums paid, less extra premiums and accident benefit (available under the policy) premiums.

The policy is available for sum assured starting from Rs. 50,000 and the proposer has to be between 22 and 60 years at the time of taking the policy (Jeevan Vishwas is more flexible on this count). The premium-paying term is worked out backwards with th e maximum age at which premiums can be stopped is 70.

It is worth comparing the costs of taking up any other annuity plan of the LIC along with a pure life risk cover (see box for a comparison of the policies.).

Costs, benefits and tax-breaks

UNDER Jeevan Vishwas, the annual premium is Rs. 4,460 for a sum assured of Rs. 1 lakh for a 25-year policy if the proposer is 35. The one-time premium is Rs. 36,745. A 35-year policy on the same terms costs Rs. 3,070 a year, and Rs. 25,800 under the sing le-premium option.

If the life assured dies after 10 years of the policy being in force, the basic sum assured plus the guaranteed addition add up to Rs. 1,60,000. This amount plus the loyalty addition, if any, would be the notional sum assured and 20 per cent of that amou nt would be paid to the beneficiary immediately. The rest would go to fund an annuity.

Jeevan Aadhar presents the following profile: For Rs. 1 lakh sum assured for a 25-year term, if the proposer is 35, the annual premium works out to Rs. 3,640. For a 35-year term, it becomes Rs. 2,350.

The guaranteed addition of 10 per cent means that the notional sum assured (taking just the basic sum assured of Rs. 1,00,000 and the guaranteed addition of 10 per cent and not taking into account the loyalty addition) works out to Rs. 2,00,000. Twenty p er cent of this is paid as a lumpsum to the beneficiary on the death of the life-assured and the rest is used to pay the annuity.

The annuity works out to about Rs. 85.80 per year for each Rs. 1,000 claim amount (the 80 per cent that remains of the notional sum assured) if the option has been for 15 years certain and annuity thereafter.

The two policies are similar in aim, but Jeevan Vishwas has more flexible terms. Yet, it is Jeevan Aadhar that gives the beneficiary a better payout with its 10 per cent guaranteed addition compared to the 6 per cent under Jeevan Vishwas.

There are other points of difference. Jeevan Aadhar does not give a lumpsum payment on the maturity of the policy while Jeevan Vishwas does. The latter is also more friendly in choice of terms of the certain payment of annuity as well as offering return of the notional purchase price (of the annuity).

Jeevan Aadhar gives a better tax benefit. Under Section 80 DDA of the Income-Tax Act, the life assured can claim a deduction of up to Rs. 40,000 on the premium paid for such a policy.

Jeevan Vishwas offers the regular tax rebate under Section 88 of the Act which has a ceiling of Rs. 60,000.

(The author is a Chennai-based financial journalist.)

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