February 11, 2012

Secure the future with Postal life insurance policies

Postal Life Insurance (PLI), a 125-year-old life insurance scheme run by the department of posts, is a good option for people eligible for it as it charges lower premiums and offers higher returns than comparable policies of life insurers.

The policy, started in 1884 for the employees of Posts & Telegraphs Department, has since been extended to cover all central and state government employees and those working in staterun companies, or about 70% of organised sector employees in the country. In 1995, the department launched Rural Postal Life Insurance to take the benefits to all villagers who account for 60% of India's population.

It offers better returns than other comparable products. For example, Postal Life Insurance has announced a bonus of Rs 70 per Rs 1,000 sum assured on its endowment policy - where the insured gets the sum assured plus annual bonuses when the policy period is over - irrespective of maturity since 2003.

In contrast, average bonus announced by the Life Insurance Corporation (LIC), India's largest life insurer, for endowment policies was in the range of Rs 30-48 in past five years.

Let's take the example of a 30-year old government employee.

If he buys PLI's endowment policy called Santosh for risk cover of Rs 1 lakh for a period of 20 years, he will be paying a premium of Rs 400 every month. For a similar policy offered by LIC, the Endowment Assurance Plan, the monthly premium is Rs 442.

At the time of maturity, after 20 years, he will receive a total of Rs 2,40,000 at the current bonus rate of Rs 70 per Rs 1,000 sum assured. His net earnings, if subtracted total premium paid during the policy, will be Rs 1,44,000.
In the case of LIC Endowment Assurance Policy, the proceeds could be Rs 2,04,000 (sum assured + accrued bonus + terminal bonus) at the current bonus rates.

The rate of reversionary bonus is Rs 42 per Rs 1,000 sum assured, while terminal bonus is Rs 200 per Rs 1,000 sum assured. Thus, the net earnings in the LIC scheme will be much lower at Rs 98,000.

The next obvious question is its tax treatment. Investment in PLI gets all tax benefits any life policy is entitled for. The returns are tax-free and premium payment is subject to tax exemption under 80c.

A policyholder can pay the premium at any post office across the country. Some selected government departments have the facility of recovering premium from salary. But it is better to take a premium passbook.

Postal Life Insurance, however, is not for investors who are looking for new-age products like unit-linked insurance policies (ULIPs) and pension plans. The postal department offers six plainvanilla plans: Suraksha (whole life assurance), Santosh (endowment assurance ), Suvidha (convertible whole life insurance), Sumangal (anticipated endowment assurance), Yugal Suraksha (joint endowment) and Children's Policy.

These policies just offer death cover while LIC and other insurance companies offer accidental death benefit with extra premiums. So, if you are interested in a plain vanilla insurance and if you are eligible for it, then Postal Life Insurance is a great value proposition. 



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