Settlement option is a special facility available for LIC policies, where the settled claim amount can be received as instalments, as per the choice of the policy holder. If the policy holder wants to use the claim amount for education of children or want to create an annuity, that too with out income tax liability, this option can be handy.
Settlement Option – Key features
- Option can be availed on maturity claims as well as death claims.
- Instalments may be paid over a minimum period of 2 years and maximum period of 10 years as per the choice of the policy holder/claimant.
- The mode of payment can be in either Yearly or half yearly as per the choice.
- Minimum instalment amount should be at least Rs. 2000.
- Claimant has to exercise the option within 6 months from claim date but before the claim payment.
Settlement Option – Online Calculator
Settlement Option – online calculator can help you in understanding the details of the the option at depth. Use this calculator to know the settlement amount available for various options.
Settlement Option – Advance and Arrears options.
There are two types of settlement options, one is advance ie first instalment is paid on the due date of the claim, and second is arrears ie first instalment is paid after 6 month or 1 years (as opted by policy holder). The settlement rates are different for these options. One thing to remember is that maturity claim amount can be settled as advance option only, where as death claim can be settled either as advance or arrears option
Settlement option – example of benefits
In order to understand it at depth, let us consider an example of a claimant with following details.
The details of the benefits available through settlement option will be as given below.
If you want to get details of settlement amount as per your own details, you can use the calculator provided above.
Practical uses of settlement option
This facility can be used effectively when you want to create an educational plan for your child where amount has to be received over a period of time. Let us consider an example of a child Naveen whose age is 1 years. Naveen needs money for education from 18 years of age. Parent of Naveen (Age35) takes an endowment plan of 17 year term and opt for settlement over a period of 4 years.
|Educational Plan for Master Naveen (Age 1)|
|Plan Considered||LIC’s New Endowment||Plan and term||814-17|
|Sum Assured||Rs. 10 Lakh||Premium||Rs. 59397 + GST|
|Assumed maturity amount*||Rs. 17,44,000||Settlement Opted for||4 Years|
|Return from Settlement of maturity amount of Rs. 17,44,000|
|18 th Age of Naveen||Rs. 4,68,404||19 th Age of Naveen||Rs. 4,68,404|
|20 th Age if Naveen||Rs. 4,68,404||21 st age of Naveen||Rs. 4,68,404|
|Total amount received for education of Naveen||18,73, 616||Total premium paid||10,09,749 + GST|
Settlement option can be used to create a pension plan of your choice also. Here the advantage is that the annuity created from settlement option is exempted from income tax liability as per the sec 10(10D) of Income Tax act. On the other hand annuity received from pension plans are taxable.
Let us consider an example of a pension plan created using settlement option. Let the age of the person be 35 years. A combination of two plans were used to create pension plan. The maturity amount received were settled for 9 years and 10 years respectively.
*The maturity amounts shown here are for indicative purpose only. Latest bonus rates are used for the calculations. Please remember that these rates are not guaranteed and can vary based on the experiences of LIC of India.
Anish L J is a ‘Financial Planner’ and member of Chartered Insurance Institute(CII), London and Insurance Institute of India. He is also a finance, insurance and software consultant. He thoroughly follows the developments in finance, insurance, and other related sectors.