• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
financial planner in Chennai

Financial Planners in Chennai | Financial advisor in Chennai | Assuredgain | Chennai | India

Chennai's #1 Financial Advisor & Planner

  • Home
  • About Us
    • Why Us – Best financial advisor in chennai
    • Employee Financial Wellness Program
    • Free Consultation With chennai’s No.1 Financial Adviser
  • Our services
    • Insurance Planning-
    • Tax planning
    • Investment Planning
    • Child Future Planning
    • Retirement Planning.
    • Employee Financial Wellness Program
  • Blog
  • Contact Us
  • Terms & Condition
  • Privacy Policy

Magic of LIC as tax-saving tool! Why should one invest in LIC than Fixed deposit?

February 25, 2013 by assuredgain

There are dangers of comparing financial products because each product is designed for different purpose and needs. But comparisons are tools to help us arrive at decisions that account for our needs and suitability.

We often hear how life insurance products give low returns compared to other products and it is partly true. However after combining the insurance and tax saving component of the product, the resulting combination is a potent one. Let us find how the tax saving component makes a big difference in the total returns of a life insurance product.

We take the example of LIC’s endowment plan (Table 14) and compare it with tax saving bank’s deposits. While bank deposits earn a return of around 8.5-9%, the return on a life insurance product is generally below 6%. However, let’s dig a bit more and find the returns after applying tax benefits and the insurance component.

Bank’s Tax Saving Deposits (30.9% Marginal Tax Bracket)

Bank Tax Savings usually earn about 8.5% p.a. compounding quarterly giving an effective annual return of 8.774796% compounded annually. The Investment is eligible for Income Tax Rebate @ 30.9% i.e. Rs30,900 in the case considered.

However the interest in case of Bank Tax Savings Scheme is taxable at marginal tax rate of 30.9%.

Bank Tax Savings FDR’s are available for terms 5 to 10 years. We have taken the example for a 10-year term. We use a FDR Term for 10 years so that it can be compared LIC’s 10 year Endowment Assurance with a Sum Assured of Rs9,50,000 + Term Rider for Rs1,00,000 so that the Premium of Rs97,303 for the Plan is within 10% of the Capital Sum Assured of Rs10,50,000 (Rs9,50,000 basic SA + Rs1.00,000 Term Rider). Both the Schemes are eligible Income Tax Rebate @30.9% of the

Contributions.
Bank FDR’s usually come with 2 options;
Option 1
Cumulative option with a Maturity Value of Rs2,31,890 where the investment is Rs1,00,000. The accumulated interest is Rs1,31,890 and the tax thereon is Rs40,750 reducing the Maturity Value of Rs2,31,890 to Rs1,91,140 (after tax).  However, the Investment of Rs1,00,000 qualifies for  tax Rebate of 30,900 (30.9%) and the net investment reduces to Rs69,100 (1,00,00 – 30,900). What this means is that a net outgo of Rs69,100 gives a net income of Rs1,91,140. The true return under the scheme is 10.7101% compounded annually. This is presented and tallied as “10-Year Bank FDR @ 8.774796% p.a Cumulative”.

Option 2
The interest on the Bank Tax Savings FDR is paid out annually @ 8.774796%. The Annual interest is Rs8,774.50. The tax @ 30.9% is Rs2,711.50 and the net interest in hand is Rs6,303). The true return under this option is presented and tallied as “10-Year Bank Tax Savings FDR @ 8.774796 annual Interest Payout”. The True Return is 11.3977 compounded annually.

LIC’s Endowment Plan

14-10 with Term Rider
We look at LIC’s 10-Year Endowment with Profits for a Basic Sum Assured of Rs9,50,000 with a term Rider for Rs1,00,000. The Annual Premium is Rs 97,303. Bonuses assumed at Current Rate of 3.4% p.a.. The Maturity Value is Rs13,23,000. And this is tax-free. True return under plan is 12.0198% tax-free compounded annually.

Compare this with Bank Tax Savings Scheme of 10.7101% under Cumulative option and 11.3977% compounded annually.

And we have not taken credit for the Risk Cover Cost into account and is the RCC (the Reinforced Cement Concrete) of any investment strategy!

14-10 with Term Rider Less Risk Cover Cost
The Term Rider Premium for Rs1,00,00 at Age 30 for 10 years Rs234. The Basic Sum Assured is Rs9,50,000 for the 10-year term. For want of a better method, it is assumed that the average Basic Sum Assured is Rs4,75,000 and the Term + Rs1,00,000 = Rs5,75,000. Risk Cover Cost for Plan works to be:
5.75 x 234 = Rs1,346.

The investment is Rs97,303 – Rs1,346 = Rs95,957.

The Maturity Value continues to be Rs13,23,000. The True Return under Policy is 12.2629% compounded annually:

Summing Up

10-Year Bank Tax Savings IRR                                                    = 10.7101%
10-Year Bank Tax Savings IRR                                                    = 11.3977%
LIC’s 10-Year Endowment with Profits                                        = 12.0198%
LIC’s 10-Year Endowment with Profits without Risk Cover Cost        = 12.2629%

If you are looking for tax-planning with good return, please do contact us @7200039282 for

 

Related posts:

  1. Delays are costly in retirement planning
  2. Tax saving is not enough! Go ahead do Tax Planning!
  3. Eighth Wonder of the World to get Rich – The Power of Compounding
  4. Taking a comprehensive approach to your financial life
  5. 3 Golden Mantras to Achieve Financial Freedom
  6. Income Tax: Documents Required for TDS and HRA Relief
  7. Why hiring CPFA(Certified Personal Financial Advisor) is important for your financial planning?
  8. Life Insurance Myths: Get the Facts and Protect What Matters Most – 1
  9. What are the Advantages to Having Life Insurance?
  10. Income tax tips for Rs. 200,001 to 1,000,000 slab

Primary Sidebar

Recent Posts

  • SBI Life Retire Smart Pension Plan Reviews – Good or bad?
  • What is succession planning and why its important?
  • Bajaj Allianz Life Guaranteed Pension Goal Review- A Guaranteed Trap
  • 2021 Guide to Term life vs Whole life insurance
  • Stock-market Versus Whole-life insurance – Is your money committed or in a relationship

About Us

AssuredGain is a leading wealth management firm specialising in financial planning based in Chennai. We offer all the services traditional financial planners offer, except that at AssuredGain, we do things a little differently……and these differences mean we’re able to maximise your financial success and help you enjoy today – and retire life ready, certain you have enough.

More About Us

Meta

  • Log in
  • Entries feed
  • Comments feed
  • WordPress.org

Archives

  • March 2022
  • November 2021
  • July 2021
  • March 2021
  • October 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • August 2019
  • July 2019
  • May 2019
  • March 2019
  • September 2018
  • June 2018
  • December 2017
  • July 2017
  • March 2017
  • May 2015
  • November 2014
  • July 2014
  • May 2014
  • April 2014
  • February 2014
  • January 2014
  • December 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012

Connect with Us

Address: 5/318, Old Mahabalipuram Road, Oggiyampet, Chennai: 600097
Phone: +91-7200039282
Email: info@assuredgain.com

  • +91-7200039282
  • info@assuredgain.com

Tags

Advanced planning Bajaj Allianz- Best financial planner in Chennai Certified financial planner Chennai Chennai Chennai Financial planning education planning Financial Advisor financial freedom financial planner chennai Financial Planning Financial planning chennai Financial planning for singles financial products for women health insurance investment Investment Advice Investor Education LIC policy life insurance Money Money & Finances NCFM ncfm exam ncfm registration ncfm study material Permanent Total Disability personal accident policy policyholder Rajiv Gandhi Equity Savings Scheme real estate Real estate investments retirement planning for seniors retirement planning lic retirement plans india Save Tax savings sensex stockmarket Tax planning Top financial planners in Chennai Wealth Coach wealth management wealth manager Wealth Protection | Tagged insurance

Our Newsletter

Subscribe to our newsletter to get the latest updates from our blog. We respect your privacy.
+91 72000 39282

About Us

Footer

© 2022 ASSUREDGAIN FINANCIAL PLANNERS | All Rights Reserved.