An ideal plan to lock-in long term interest rates

Interest rates are falling everywhere. The current rise of interest rates is because of inflation. Once inflation lowers down, the interest rates too will follow. If we take a long term view, it is observed that interest rates fall by about 3% every 10 years. Many individuals who had opted for VRS are now regretting their decision as their calculations of earning interest on their retirement corpus has gone wrong. This is because they had taken into consideration 5-10 year interest rates. The main question here is, you book FD at attractive interest rate for retirement say for 5 years, but what when you are to renew it? Your initial FD may be at 8% rate of interest but subsequent renewals will be at 6% and 4%.

In light of the above discussed problem of falling interest rates, today I am going to discuss one plan which locks interest rate at 7.25% for your entire life. Yes you heard it right. 7.25% for lifetime.

Let us look at an example. Mr. A is 40 years old and wants to retire after the age of 60. He has 20 years to retirement. He decides to invest Rs. 2,00,000/annum in this plan for 20 years. So he invests a total of Rs. 40,00,000. From 21st year (Mr. A turns 61) Mr. A starts receiving Rs. 2,90,000/annum (7.25% of Rs. 40,00,000) till he turns 99 or till he lives. Let us assume he lives till the age of 80 years and expires, in that case, Mr. A has already received 2,90,000 * 20 ( age 61 to 80) = Rs. 58,00,000 and his nominee will receive Approximately Rs. 1,50,00,000-1,80,00,000. Mr. A will receive deduction from income under section 80D till he pays premium and all the amount received by him or his nominee is tax free under section 10(10D)

The plan I am talking about is LIC’s Jeevan Umang plan. The plan is guaranteed by LIC which in turn is guaranteed by the Government of India.

Eligibility Criteria of LIC Jeevan Umang Plan

Let’s take a look at the eligibility criteria of the policy:

Eligibility Criteria



Entry Age

90 days

55 years

Policy Term

100 years - Age at entry

Sum Assured

Rs. 2,00,000

No limit

Maturity Age

100 years


Premium paying term

15 years, 20 years, 25 years, and 30 years

Age at the end of premium paying term

30 years

70 years

Other Details of the LIC Jeevan Umang Plan

  1. Grace Period

A grace period is 15-30 days offered by LIC to policyholders who have failed to pay a due premium amount. The policy lapses if payment is not done by the end of this period.

  1. Free-look Period

A free look period of 15 days from the date of policy initiation is offered by LIC. During this period, the policyholder can cancel the policy if he/she is dissatisfied with its terms and conditions.

  1. Policy Surrender

The policyholder can surrender the policy, provided the premiums are duly paid for two consecutive years. On surrender of the policy, the insurance company will pay a surrender value equal to the special surrender value or the guaranteed surrender value (whichever is higher).

  1. Loan Facility

Policyholders can take loans to fund urgent needs. The maximum loan amount is subject to the following conditions -

  • 90% of the surrender value for active policies.
  • Annual interest charged on the loan amount by LIC should not exceed 50% of the annual survival benefit
  1. Paid-up Value

In case the life assured has paid premiums for 2 years but stops after, then the policy will continue as a paid-up policy. In such cases, the sum assured shall decrease as per the remaining premiums.

The paid-up sum assured on death is equal to:

  • Number of premiums paid/ total number of premiums to be paid X sum assured on death

Similarly, the paid-up sum assured on maturity is equal to:

  • Number of paid premium/ total number of premiums to be paid X sum assured on maturity