calculate premium

How to Calculate Returns on LIC Policies (Part 2)?

July 6, 2014

First Read –How to Calculate Returns on LIC Policies (Part 1). Now take an illustration to calculate return of an LIC Policy.

Case 1:

Ramesh had LIC Policy for a Sum Assured = Rs 1,00,000 with Policy Term = 5 years (Date of Commencement – 28/08/1999). He was paying premium of Rs. 8,000 per annum. Due to some personal issued he missed his premium payment in 2005. First Unpaid Premium Due – 28/08/2005.

The bonus declared in the year 2004 is payable to the policies which are issued on or before the year 2003. Hence, to calculate the bonus vested under a policy as on 31/12/2004, the number of completed years as on 31/12/2004 should be calculated and then the bonus for the years has to be added.

The bonus vested as on 31/12/2004 is calculated as follows:

Total number of completed policy years as at 31/12/2004 is 5 (28/08/1999 to 28/08/2004). The policy will be eligible for bonus from the 2000 year valuation onwards.

LIC Bonus Rates (approx data for analysis purpose, check here for LIC Bonus Rates):

So the vested bonus calculated under the policy as at the end of each year will be as follows:

*This culmulative amount will be paid to the policyholder at the time of policy maturity or death.
So on maturity the total amount will be = Rs 100,000 + Rs 10,600 = Rs 110,600 /-

Case 2:

Manish has a LIC policy, Sum Assured = Rs 1,00,000 with Policy Term = 25 years. He is paying annual premium of Rs. 4,346 per annum. He wanted to check, how much he is going to get after 25 years.

Lets do the calculation:
Term Period = 25 years
Total premium payment = 4346 X 25 = Rs 108650/-
Bonus rate as 0.055. (approx data for analysis purpose, check here for LIC Bonus Rates)

The final Bonus amount will be = 0.055 X 1,00,000 X 25= Rs 137500/-
So on maturity the total amount will be = Rs 100000 + Rs 137500 = Rs 237500 /-

Same way you can also add Final Addition Benefit (FAB) with this amount (if any).