Varishtha Pension LIC Scheme
Varishtha Pension LIC Scheme, mostly referred to a Varishtha Pension Bima Yojana of LIC is in reality, a joint venture between Life Insurance Corporation of India and Government of India. The primary motive behind making this pension scheme available in market was to provide a tool that people above the age of 60 can use to buy their financial freedom. Unfortunately, the scheme was opened for a small timeframe that started on August 16, 2014 and ended on August 14, 2015. Currently, the scheme is out of market.
The primary aim of the Varishtha Pension LIC Scheme was allow seniors in India to gain financial freedom. The exclusive design of this pension scheme from LIC and GoI (Government of India) catered only and only to senior citizens. Simply put, the pension scheme was not made available to anyone below the age of 60 years.
Let us take a quick look at the specifications of the scheme:
|Age at which policy can be bought||60 years||Not Applicable|
|Term of policy (duration for which the policy stays active)||5 Years||35 Years|
|Guaranteed payable amount or sum assured||₹ 66,665||₹ 6,66,6665|
|Payable Pension||Monthly||₹ 500||₹ 5,000|
|Quarterly||₹ 1,500||₹ 15,000|
|Half yearly||₹ 3,000||₹ 30,000|
|Annual||₹ 6,000||₹ 60,000|
|Purchase Price||Monthly||₹ 66,665||₹ 6,66,665|
|Quarterly||₹ 66,170||₹ 6,61,690|
|Half yearly||₹ 65,430||₹ 6,54,275|
|Annual||₹ 63,960||₹ 6,39,610|
According to the eligibility criteria set under the Varishtha Pension LIC Scheme:
- The applicant must have attained 60 years of age. Even 1 day shy of being 60 is not allowed.
- The applicant can choose from 4 pension mode:
- Once every month.
- Once every 3 months.
- One every 6 months.
- Once every 12 months, i.e. per year.
- There is a predefined minimum and predefined maximum pension per month. Pension cannot go below the minimum or exceed the maximum even if the applicant wishes otherwise. A minimum and maximum is set for all 4 available modes of pension.
- Only NEFT or ECS payment mode can be selected. No other payment mode is available.
- The pension scheme can be purchased with a one-time payment of a lump sum amount.
- The applicant can choose to either pay the amount he wishes to withdraw as pension or the policy purchase price.
- Based on the pension installment mode selected by the applicant, the first installment will be paid out within:
- 1 month from the date of purchase.
- 3 months from the date of purchase.
- 6 months from the date of purchase.
- 12 months or 1 year from the date of purchase.
- Every subsequent installment will be paid out as per the selected pension mode.
Pension will be calculated based on every ₹ 1,000 of purchase price. The applicable pension rates under the scheme are:
|Purchase Price||Mode||Pension Rate (calculated per annum)*|
|₹ 1000||Monthly||₹ 90.0000|
|Half yearly||₹ 91.7045|
* Final installments will be rounded off to the closest rupee value in case of a fraction.
Thus, as per the above rate chart, if a person selects the following options:
- Pension mode: minimum monthly
- Purchase price: ₹ 66,665
The annual pension the applicant will receive is:
Since the person opted for monthly pension, the amount of pension he receives per month will be:
Other Features and Restrictions
Now that we know how the minimum and maximum pensions under each pension mode is calculated, let us take a quick look at other features of the Varishtha Pension LIC Scheme:
- Policy Surrender:The scheme comes with a 15-year surrender period under which, the applicant or rather the pensioner decides to surrender the policy or the scheme; he or she can do so. Upon surrender, the pensioner will be entitled to a refund of 100% of the scheme’s purchase price. In other words, whatever the pensioner paid for purchasing the scheme shall be returned in full. This is called surrender value.
- Policy Surrender Under Special Circumstances:The surrender value will be reduced to 98% in case the pensioner decides to surrender the scheme prior to 15-year completion period. Early surrender under the Varishtha Pension LIC scheme is two stringent conditions. First, the pensioner or his/her spouse has to be critically ill and the money will be used for covering treatment expenses and second, either the pensioner or his/her spouse is terminally ill and requires money for covering medical expense.
- Return Policy:Varishtha Pension LIC Scheme offers a Free Look Period of 15 days. Simply put, the Free Look period is the technical term or insurance jargon used for signifying a simple concept – return policy! This means that once the policy is purchased, the person can return the policy and get back his money without any penalties within a period of 15 days from purchase date just in case he or she doesn’t like the terms and conditions of the scheme. However, stamp duty will be deducted from the amount paid bac
- Loan Withdrawal: The pensioner can avail loan on the scheme only after the scheme has run successfully for a period of 3 years. The maximum amount of loan that can be availed under the scheme is 75 percent of scheme purchase price.
- Loan Interest Repayment: LIC will charge interest on the extended loan money. The interest rate is flexible which means that it will be adjusted as per prevailing market interest rates. The interest money will be deducted from the pension installments paid. In case of quarterly, half-yearly and annual modes, the interest will keep accruing until the pension payout date and the accrued amount gets deducted from the next pension payment.
- Loan Principal Repayment: The principal amount loaned out will be deducted from the lump sum amount paid during claim settlement.
- Taxation: The scheme is not immune to taxes. This means that all applicable taxes, which also includes the service tax will be applied on the scheme. The tax money has to be paid as per existing tax rates during the purchase. The tax money is not counted while calculating pension rates.
- Death Clause: If the pensioner dies during the scheme term (suicide is not covered), the purchase price of the scheme will be refunded to the nominee. However, this will be subject to standard claims procedure. In case of additional documents required, LIC will be notifying the claimant.
Varishtha Pension LIC Scheme happened to be a good pension scheme for senior citizens of India. Unfortunately, the scheme was made available only for a small time frame. Those who opted for the scheme made a smart choice as it allows financial freedom that they rightly deserve.