Sunday, September 22, 2013

Why should you purchase Insurance BEFORE 15 December 2013

What is happening to LIC on the 30th of September 2013?


  • On 30th of September, most of the traditional plans of LIC of India are being retired. They are being replaced by new plans. This is because IRDA has come up with new regulations for linked, non-linked and health plans.
  • Till now, LIC has been bearing the cost of Service Tax. For all policies taken after 30 Sep 2013, the Service Tax will be borne by the Customer. For some plans, the date has been extended to 31 Dec 2013.  However, a number of plans will be retired in a phased manner.
  • While the last date for a few plans remains at 31 Dec 2013 (which plans will stay till then is not clear), it is suggested to do all buying before 15 Dec 2013 to account for holidays and other processing delays.

How does it affect the Customer?

  • New Insurance Policies are set to be costly by the addition of Service Tax
  • No impact expected on policies purchased before 30 Sep 2013.

How much is the Service Tax?
  •  3.09% of the Premium paid. So your premium goes up by 3.09% per year
A sample projection below:


What if Analysis Report - Why should you purchase Insurance BEFORE 30th Sep'13

BEFORE
30th Sep'13
** AFTER
1st Oct'13
Annual premium payable
61,320
61,320
Service tax applicable in the first year @ 3.09%

1,895
Net Premium payable in first year
61,320
63,215
Annual premium payable in subsequent year
61,320
61,320
Service tax applicable in the subsequent year @ 1.545%

947
Net Premium payable in subsequent year
61,320
62,267
TOTAL Premium payable during the term
23,59,796
23,97,202
Summary of the analysis
Additional amount to be paid, if purchased AFTER 1st Oct'13
( i.e.: 2,397,202 minus 2,359,796)

37,406
If the additional amount to be paid is re-invested @ 9.00%, the amount would be

11,47,523
Conclusion
LOSS due to the Insurance postponed for purchase AFTER 1st Oct 2013

37,406
Overall considering the magic of compounding, the LOSS amount would be
(if invested @ 9.00%)


1,147,523

5 comments:

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