What is an LIC Policy?

The Life Insurance Corporation of India (LIC) is an Indian state-owned insurance group and investment corporation. For decades, it has been synonymous with life insurance in India. An LIC policy is a contract between an individual and LIC, where the individual pays regular premiums in exchange for a lump-sum payment, known as the sum assured, upon the death of the insured person or after a specified policy term. Many LIC policies are not pure insurance (term plans) but are endowment or money-back plans, which combine insurance coverage with a savings component.

Understanding the Components of Maturity Value

For endowment-type plans, the final amount you receive upon surviving the policy term is called the maturity value. It is typically composed of three main parts:

• Sum Assured (SA): This is the guaranteed amount that the policyholder will receive upon maturity or that their nominee will receive upon death. It is the face value of the policy chosen at the time of purchase.
• Simple Reversionary Bonus (SRB): LIC is a participating insurer, meaning it shares its profits with policyholders. This share of profit is distributed in the form of bonuses. The Simple Reversionary Bonus is declared annually by LIC as a rate per thousand of the Sum Assured. This bonus accrues each year but is only paid out at the time of maturity or death.
• Final Additional Bonus (FAB) or Terminal Bonus: This is a one-time, discretionary bonus paid at the time of maturity or death for policies that have been active for a long duration (usually 15 years or more). The FAB rate is not guaranteed and depends on LIC's valuation and performance over the policy term.

The final maturity amount is the sum of these three components: Maturity Value = Sum Assured + Total Accrued Bonus + Final Additional Bonus.

How Bonus is Calculated (An Estimation)

The exact bonus rates are declared by LIC annually and can vary based on the specific plan, its term, and the year of declaration. Our calculator uses assumed average rates for estimation purposes.

Total Bonus ≈ (Sum Assured / 1000) × Assumed SRB Rate × Policy Term

FAB ≈ (Sum Assured / 1000) × Assumed FAB Rate

For example, for a ₹5,00,000 Sum Assured policy for 20 years, with an assumed SRB rate of ₹45 and an assumed FAB rate of ₹100:

• Total Bonus: (5,00,000 / 1000) × 45 × 20 = 500 × 45 × 20 = ₹4,50,000
• FAB: (5,00,000 / 1000) × 100 = ₹50,000
• Total Maturity: ₹5,00,000 (SA) + ₹4,50,000 (Bonus) + ₹50,000 (FAB) = ₹10,00,000

Important Disclaimer: These calculations are for illustrative purposes only. The bonus rates used are not official and are merely assumptions. The actual maturity amount will depend on the bonus rates declared by LIC throughout the policy term.

Tax Benefits of LIC Policies

LIC policies offer significant tax advantages, making them a popular choice for tax-saving investments.

• Premium Payments (Section 80C): The premiums you pay for your LIC policy are eligible for a tax deduction under Section 80C of the Income Tax Act, up to a limit of ₹1.5 lakh per year.
• Maturity Proceeds (Section 10(10D)): The maturity amount, including the sum assured and bonuses, is completely tax-free under Section 10(10D), provided the premium does not exceed 10% of the sum assured for policies issued after April 1, 2012.

Frequently Asked Questions (FAQs)

1. Is the maturity amount shown by this calculator guaranteed?

No. The Sum Assured component is guaranteed, but the bonus and FAB components are not. They depend on the future profits and declarations by LIC. This calculator provides an *estimation* based on historical averages and assumptions to give you a general idea of the potential returns.

2. How do I find the actual bonus rates for my policy?

LIC declares bonus rates annually. You can find these rates on the official LIC website or in your policy documents. For a precise calculation, it's best to contact your LIC agent or the nearest LIC branch.

3. What is the difference between an endowment plan and a term plan?

A term plan is a pure life insurance product that provides a death benefit to the nominee if the insured dies during the policy term. There is no maturity value if the insured survives the term. An endowment plan, on the other hand, is a combination of insurance and savings. It provides a death benefit to the nominee on death, and a maturity benefit (Sum Assured + Bonuses) to the policyholder if they survive the term.

4. Can I take a loan against my LIC policy?

Yes, most LIC endowment policies acquire a "surrender value" after a few years of premium payments, and you can typically take a loan against this value. The terms and conditions for loans vary by policy.