What are the benefits of taking LIC?

Explore options on the Life Insurance Corporation of India Portal to review plan categories, or learn more about policy benefits through Policybazaar.

Life Insurance Corporation of India (LIC) policies provide financial security, savings growth, and tax advantages for policyholders.

Key Financial and Protection Benefits

• Life Cover Protection: Plans secure financial payouts for your family or nominees if an unexpected death occurs during the policy term.
• Savings and Returns: Endowment and money-back plans combine risk cover with long-term wealth building, often adding declared profits as bonuses.
• Tax Savings: Premiums paid toward eligible LIC policies qualify for deductions up to ₹1.5 lakh per year under Section 80C of the Income Tax Act.
• Loan Facilities: Policyholders can secure liquidity by taking a loan against active traditional policies.
• Flexible Riders: You can add optional riders—such as accidental death or disability cover—to enhance standard policy protection.

Life Insurance Corporation of India (LIC) is excellent for government-backed safety and trust, but generally poor as a wealth-building investment.

Why LIC is Good

• Sovereign Guarantee: The Indian government backs the sum assured on traditional plans, making it one of the safest financial institutions in the country.
• High Claim Settlement: LIC maintains a strong track record with a claim settlement ratio of roughly 98.5%.
• Tax Savings: Premiums and maturity payouts qualify for tax deductions under Section 80C and Section 10(10D) of the Income Tax Act.

Why LIC Might Not Be Good

• Low Returns: Traditional endowment and money-back plans yield an internal rate of return (IRR) of only 4% to 5%, which struggles to beat long-term inflation.
• Expensive Cover: Combining insurance and savings makes plans like endowment policies cost much more while offering a much lower life cover than pure term insurance.
• Strict Lock-in: Exiting a policy early or surrendering midway results in high financial penalties and a loss of a large portion of paid premiums.

Summary Recommendation

Financial experts suggest keeping insurance and investment separate. You can read more about how these options compare on Bajaj Finserv. Buy a pure term insurance plan for risk protection and put your savings into mutual funds or public provident funds (PPF) for better growth.

The exact amount you will get after 20 years from a Life Insurance Corporation of India (LIC) policy depends heavily on your Basic Sum Assured, your specific plan type, and the annual bonus rates declared by LIC.

Because your exact policy name is missing, we must make a reasonable assumption. A 20-year term typically points to one of LIC's most popular plans: LIC's New Money Back Plan (20 Years - Plan 920). If your policy is a standard Endowment Plan, the math changes slightly since you do not receive intermediate payouts.

Option A: LIC's New Money Back Plan - 20 Years (Plan 920)

If you have a Money Back policy, you receive payouts during the term, meaning your final maturity amount is a remaining percentage of the sum assured plus your total accumulated bonuses.

• Premium Payment Term: You pay premiums for 15 years instead of 20.
• Survival Payouts (During the 20 Years): You get 20% of the Sum Assured at the end of the 5th, 10th, and 15th years.
• Final Maturity Payout (Year 20): You get the remaining 40% of the Sum Assured + Accrued Reversionary Bonuses + Final Additional Bonus (FAB).

Simulated Returns Example (Assuming a ₹10 Lakh Sum Assured)

Based on historical average LIC bonus estimates (~₹35 to ₹40 per thousand per year):

Option B: LIC Endowment Policy - 20 Years (Plan 914)

If you have a traditional savings/endowment plan, you do not receive money back every 5 years. Instead, you get one large lumpsum amount at the very end.

• Maturity Calculation Formula: 100% Sum Assured + Accrued Bonuses + FAB.
• Simulated Returns (Assuming a ₹10 Lakh Sum Assured): You would receive nothing during the 20 years, but a massive single payout of approximately ₹18,00,000 to ₹19,50,000 at the end of Year 20.

⚠️ Hidden Realities & Advice

Traditional LIC policies are highly secure and provide tax-free maturity benefits under Section 10(10D). However, from a wealth-building perspective, they have a major downside:

• Low Annualized Returns (XIRR): When you factor in the premiums paid over 15 to 20 years against the final payouts, the actual return on your investment usually translates to an annualized rate of only 4% to 6%.
• Inflation Risk: A payout of ₹18 Lakhs 20 years from now will have significantly less purchasing power than it does today.

My primary recommendation is to keep the policy if it is already near maturity to avoid severe early exit/surrender penalties. However, if you are planning new long-term financial goals, look toward a combination of Term Life Insurance (for high life cover protection) and Equity Mutual Funds/PPF (which historically generate 8% to 12%+ yields) to protect your money against inflation.

To calculate your exact final cash figure, could you share:

1. What is the exact name or Plan Number of your policy?
2. What is your Basic Sum Assured amount?
3. How many years of premiums have you already paid?

What happens after 10 years of paying life insurance depends entirely on whether you have a 10-year term policy or a 10-pay permanent policy.

10-Year Term Life Insurance

If you bought a 10-year term policy, the contract reaches its end date after 10 years.

• Coverage ends: Your protection stops, and no death benefit is paid out if you outlive the term.
• No money back: Term insurance does not build cash value, so you do not get your paid premiums back (unless you bought a rare return-of-premium rider).
• Your options: You can let the policy expire, apply to renew it at a much higher rate based on your current age, or convert it to permanent coverage if your policy allows.

10-Pay Whole Life Insurance

If you bought a specialized 10-pay whole life policy, you planned to finish all required payments in 10 years. Read more details on how this works via Western & Southern.

• Policy is paid-up: You no longer owe any monthly or annual premium payments.
• Lifelong coverage: Your permanent death benefit stays active for the rest of your life.
• Cash value continues: The accumulated cash value inside the policy keeps growing on a tax-deferred basis, and you can still borrow against it if needed.

The primary disadvantage of traditional Life Insurance Corporation of India (LIC) endowment and money-back policies is that they mix insurance with investment, resulting in low coverage and poor long-term financial returns.

📉 Low Financial Returns

• Traditional LIC plans typically yield only 4% to 6% returns.
• Returns struggle to beat long-term inflation.
• Market-linked products like mutual funds generally offer higher growth.

⚠️ Inadequate Life Cover

• Coverage amounts are usually low, often only 10 times the annual premium.
• High premiums buy significantly less protection compared to pure term insurance.
• Families may be left underinsured during an emergency.

🚫 Rigid Lock-in and Low Liquidity

• Surrendering traditional policies early incurs heavy penalty charges.
• Premature withdrawal often returns minimal cash value.
• Funds remain strictly locked compared to liquid options like a Systematic Investment Plan (SIP).

💸 High Agent Commissions and Fees

• High initial agent commissions (up to 35% in the first year) eat into returns.
• Administrative and management charges reduce the overall maturity payout.