This is a unit linked plan which offers potential to grow your money and offers life cover also. Being a unit linked plan, it offers growth potential if invested over a long period of time. The performance of the funds you invest the money in will determine the overall returns of your investment. This plan also has tax savings built into it. We will understand this plan in detail .
How LIC SIIP plan works
You decide on the amount of money you want to invest on a monthly basis (you can invest in annual, quarterly, half-yearly or single mode also). You then select the term of the policy between 10 to 25 years. Based on the premium amount and your age, your life cover gets decided automatically. The money which you pay is invested in the funds of your choice - you have 4 funds to choose from. Based on the amount you invest and the choice of funds, you will be allocated Units of these funds. The value of these funds depends on the NAV which are declared on a daily basis. So you can keep track of your investment and performance from Day 1. You will be provided with some Guaranteed Additions also which we will explain further below.
Note - In this plan, you have to stay invested for at least 5 years. You cannot withdraw your investment before 5 years.
COMPARE THIS PLAN WITH OTHER ULIP PLANS
Benefits of LIC SIIP Policy
Maturity Benefit - At the end of the policy term you will get the Fund Value in the policy. Just as an example, if you hold 1,000 units with an NAV of Rs. 53.26, the Fund Value will be 10,000 x 53.26 = Rs. 53,260. You have the option of withdrawing your money over a period of maximum 5 years - details of this are mentioned under the Settlement Option which is explained below.
Settlement Option of Maturity Amount - You can choose to take the maturity amount over a period not exceeding 5 years. For example, if you choose 5 years as the Settlement period, the units you hold at maturity will be divided by 5 and each year you will get ⅕ of the Units. The existing units will continue to be invested in your funds and the Fund Management Charge would apply. There will be no risk cover during this period. Also no switching or partial withdrawal will be allowed during this period.
On death after the Risk Commencement Date
In case of the death of the policyholder, the nominee will get the highest of the following:
Basic Sum Assured less any partial withdrawals made
105% of the premiums paid less any partial withdrawals made during a 2 year period immediately preceding the date of death
On death before the Risk Commencement Date - In case of the death of the policyholder, the nominee will get the Fund Value.
Risk Commencement Date:
In case Life Assured is less than 8 years of age - the risk under this plan will commence either on the completion of 2 years from the date of commencement of the policy or on policy anniversary coinciding with or immediately following the completion of 8 years of age, whichever is earlier.
In case Life Assured is more than 8 years of age - the risk commences immediately
Refund of Mortality Charges
In case the life assured survives the policy period and has paid all due premiums, the mortality charges deducted till date will be paid along with the maturity dues. Taxes and any extra premiums charged due to underwriting increases will not be refunded. Also, this refund is not applicable for surrendered of discontinued policies.
If all due premiums have been paid, LIC will pay amounts which will be used to purchase Units and added to your account. The Guaranteed Additions will be as a % of your Annalised Premium and will be allocated as follows:
End of policy year
It means that if you are paying Annual Premium of Rs. 50,000 in the plan, after the 6th year Rs. 2,500 worth of units will be credited to your account. Your total additions will look like this…
Accidental Death Benefit Rider - You can make an extra payment and add this rider to your plan. In case of death due to an accident, your nominee will receive the rider benefit also in addition to the base benefit of the plan.
Partial withdrawal - You can make a partial withdrawal of your funds at any time after the completion of 5 policy years. You should have attained the age of 18 years though to make partial withdrawals. The amount you can withdraw will be determined as follows:
6th to 10th
11th to 15th
16th to 20th
21st to 25th
After making the partial withdrawals, an amount equal to 3 times the annual premium should remain in your account.
Switching - You can move your accumulated funds to another fund at any point of time.
Discontinuation of premiums - There are the following 2 scenarios:
You stop paying the premiums before completion of 5 policy years - After the grace period of paying premiums gets over, the Fund Value at that time will move to the Discontinued Policy Fund. Your risk cover also ceases. Here you would earn an interest rate of a minimum 4% (this is as per the current regulations). A Fund Management Charge of 0.5% would apply and there would be no other charges. After 5 policy years, the funds will be paid to the policyholder.
You stop paying the premiums after completion of 5 policy years - After the grace period of paying premiums gets over, you have the following options:
Withdraw your money and close the policy
Convert the policy to paid-up and continue with a reduced sum assured. Your investments can be withdrawn anytime later
Revive the policy by paying the due premiums and continue with the plan. This has to be done within 2 years of date of discontinuance.
Revival of your policy - You can revive your discontinued policy by paying all the missed premiums and on meeting any applicable underwriting criteria of the company. No interest will be charged on the missed premiums.
Loan - No loans are available in this plan.
Surrender - You can surrender your plan anytime after 5 policy years and receive the Fund Value. In case surrender before 5 years, the funds will move to the Discontinued Fund and you can withdraw after 5 years.
Grace period - You have a grace period of 15 days for the monthly payment mode and 30 days for other modes of premium payment.
Tax Benefits - The premiums paid are exempted from tax under Sec 80C. Please bear in mind that the annual premium should not be greater than 10% of the cover amount for this exemption to be applicable. The Maturity and Death Benefits are tax exempt under Sec 80D.
Fund Options in LIC SIIP Plan - 4 Options
Important - The returns in your plan will depend on your choice of funds. So it is very important to choose them wisely. If you choose a Low Risk fund, the chances of returns will not be very high. If you are staying invested in 5 years or more it may make sense to go a bit aggressive on the type of fund as the chances of better returns will be higher. These funds are managed by experienced fund managers of LIC.
Government / Government Guaranteed Securities / Corporate Debt
Short Term Investments such as Money Market Instruments
Listed Equity Shares
20% to 60%
0% to 40%
40% to 80%
30% to 70%
0% to 40%
30% to 70%
45% to 85%
0% to 40%
15% to 55%
0% to 60%
0% to 40%
Charges in LIC SIIP ULIP Plan
Fund Management Charge (FMC) - 1.35% per annumof the Fund Value, charged daily. This is charged by reducing the NAV of the funds. The NAV thus declared, will be net off the FMC. For the discontinued policies, it will be 0.5% per annum of the Unit Fund.
Mortality Charge - This will depend on your age and the amount of cover. This is basically the cost of providing you the life cover. This charge is deducted every month by reducing the number of Units which you hold. Every month 1/12 of the Annual Mortality Charge will be deducted by reducing the number of Units.
The charge depends on the Sum at Risk, which is defined as:
Basic Sum Assured or Paid-up Sum Assured (for paid-up policies)
105% of premiums received
Premium Allocation Charge - The premiums paid by you are used to purchase units of the Funds only after this charge is deducted. The Premium Allocation Charge in LIC SIIP is as follows:
Premium Payment Year
2nd to 5th year
6th year onwards
For example, if you have purchased this plan through an offline mode and are paying a premium of Rs. 10,000, then 8% of this will be deducted before your funds are used to purchase any units. So Rs. 9,200 will be used to purchase units in the first year.
Compare Premium Allocation Charge in ULIPs
Accident Benefit Charge - This is deducted only if you have taken the LIC’s Linked Accidental Death Benefit Rider. It will be charged at the beginning of each month by deducting units you hold. This shall be at the rate of 0.4 per 1,000 of the Accidental Benefit Sum Assured. In case the policyholder is a policeman or part of the paramilitary forces, this charge will be 0.8 per 1,000.
Switching Charge - You can make upto 4 free switches in every policy year. For every switch after the 4 free ones, a charge of Rs. 100 will be deducted. This charge is deducted by reducing the number of units you hold.
Partial Withdrawal Charge - For every partial withdrawal, a charge of Rs. 100 will be deducted. This charge is deducted by reducing the number of units you hold.
Dis-continuation Charge - If you stop paying premiums anytime before 5 years from the start of the policy, you will have to bear additional charges which are as follows:
Year of Discontinuation
AP upto Rs. 50,000
AP > Rs. 50,000
Lower of 20% of (AP or FV);
Max Rs. 3,000
Lower of 6% of (AP or FV);
Max Rs. 6,000
Lower of 15% of (AP or FV);
Max Rs. 2,000
Lower of 4% of (AP or FV);
Max Rs. 5,000
Lower of 10% of (AP or FV);
Max Rs. 1,500
Lower of 3% of (AP or FV);
Max Rs. 4,000
Lower of 5% of (AP or FV);
Max Rs. 1,000
Lower of 2% of (AP or FV);
Max Rs. 2,000
AP - Annualised Premium FV - Fund Value
The above charge will be deducted by cancelling the units which you hold. As you can see, you will have to pay substantial amounts in case you are unable to pay premiums for 5 years. So make sure you can easily pay the premiums at least for 5 continuous years from the time of purchase.
Tax Charge - Based on the tax rates and applicability, this will be on the charges which are applicable in this plan. This would be achieved by deducting units you hold.
That pretty much explains how LIC SIIP ULIP Plan works and the benefits you get out of it. If you have any questions on this plan, drop in a line in the comments and we will be happy to help out.