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Should you depend on Jan Bima Yojanas of Modi Government? - Outside View by PersonalFN

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Should you depend on Jan Bima Yojanas of Modi Government?
May 21, 2015

In its endeavour to provide some social security benefits to people, the Modi-led-NDA Government announced some insurance schemes in the union budget 2015-16. Many of you might be wondering what these insurance schemes are, and will they be beneficial for you.

Hence, for your understanding, PersonalFN has discussed some of these Jan Bima Yojanas in detail:

  • Pradhan Mantri Suraksha Bima Yojna (PMSBY):

    What is it: The PMSBY is an insurance scheme that provides an insurance cover for an individual in case of accidental death. It also covers for disability caused due to an accident.

    Amount of coverage: In case of death or permanent full disability (total and irrecoverable loss of both eyes, or loss of use of both hands or feet, or loss of sight of one eye and loss of use of hand or foot), of the insured, a sum of Rs 2 lakh will be paid. While for permanent partial disability (total and irrecoverable loss of sight of one eye or loss of use of one hand or foot), a sum of Rs 1 lakh will be paid.

    Premium payable: A sum of Rs 12 per person per annum is required to be paid as premium to insure oneself to avail the benefits under this policy.

    Who can apply: This policy cover can be taken by a person who is between the age group of 18 - 70 years.

    Who will offer:  PMSBY will be offered by all Government-sponsored general insurance companies via tie-ups with respective banks. The Government even plans to rope in other insurers in time to come.

    How to apply: In order to apply for this scheme, you need to link your Aadhaar card to your savings bank account. You will need to fill in a simple form, mentioning the name of the nominee and linking the Aadhaar Card to the bank account. Also, an auto debit authorisation is required to be submitted to your bank every year, before May 31. However, for this year (i.e. for 2015), enrolment can be done by  August 31. Thus by doing so, the amount for insurance premium will be directly debited from your bank account (as a policyholder) to the policy account. But you ought to maintain the requisite balance in your bank account every year before the June 1 to ensure automatic renewal of the policy.

    Period: The policy cover will be applicable for 1 year from June 1 to  May 31, and can be easily renewed by using the auto debit facility.

    When will the cover be terminated: The cover may cease to exist on any of the following instances:


    • Policyholder attains 70 years of age

    • Closure of bank account or insufficiency in account balance to keep the insurance cover in force

    Also, in case if the policyholder is covered through more than one account and premium is received by the Insurance Company, the insurance cover will be restricted to only one account and the premium from the other accounts shall be liable to be forfeited.

    Tax Benefit: The premium paid for PMSBY is eligible for a deduction under Section 80C of the Income Tax Act, 1961. Moreover the proceeds received from the policy will be entitled for an exemption under Section 10(10D). However, if the proceeds exceed a sum of Rs 1 lakh, a Tax Deduction at Source (TDS) @ 2% from the total proceeds will apply if Form 15G or 15H is not submitted to the insuring agency.

  • Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY):

    What is it: The PMJJBY is a pure term life insurance scheme that provides cover for the death of an individual due to any reason.

    Amount of coverage: In case of death of the policyholder due to any reason, Rs 2 lakh will be paid to the nominee.

    Premium payable: A premium of Rs 330 per annum is required to be paid to avail the benefits under this policy.

    Who can apply: This policy cover can be taken by a person who falls between the age group of 18 - 50 years. Those who join the Policy a few months before completing 50 can continue to take a risk cover, but the coverage will be until 55 years of age subject to premium payment.

    Who will offer: PMJJBY will be offered by Life Insurance Corporation (LIC) of India and life insurers willing to offer the Policy with tie-ups with banks for this purpose.

    How to apply: In order to apply for this scheme, you need to link your Aadhaar card to your savings bank account. You will need to fill in a simple form, mentioning the name of the nominee and linking the Aadhaar Card to the bank account.  Also, auto debit authorisation is required to be submitted to your bank every year before May 31. If you fail to enrol yourself by the May 31, you would also be required to submit a self-certificate of good health. However for this year (i.e. for 2015), enrolment can be done by August 31. Thus by doing so, the amount for insurance premium will be directly debited from your bank account (as a policyholder) to the policy account. But you ought to maintain the requisite balance in your bank account every year before June 1 to ensure automatic renewal of your policy.

    Period: The policy cover will be applicable for 1 year from June 1 to May 31, and can be easily renewed by using the auto debit facility.

    When will the cover be terminated: The assurance on the life of the policyholder shall terminate on any of the following events and no benefit will be payable thereunder:


    • On attaining 55 years of age

    • Closure of account with the bank or insufficiency of balance to keep the insurance in force
      Also, in case if the policyholder is covered under PMJJBY with LIC of India / other company through more than one account and premium is received by LIC / other company inadvertently, insurance cover will be restricted to Rs 2 Lakh and the premium shall be liable to be forfeited

      Tax Benefit: The premium paid for PMJJBY is eligible for a deduction under Section 80C of the Income Tax Act, 1961. Moreover the proceeds received from the policy will be entitled for an exemption under Section 10(10D). However, if the proceeds exceed a sum of Rs 1 lakh, a Tax Deduction at Source (TDS) @ 2% from the total proceeds will apply if Form 15G or 15H is not submitted to the insuring agency.


    What should you do?

    PersonalFN is of the view that these social security schemes promoted by the Government are quite attractive given their low premiums and the nature of the policies. However, one should not stick to only these schemes. An important question to ask yourself is are these covers sufficient and do a prudent assessment of your insurance needs. A life insurance cover must be able to meet all of your dependent’s expenses (such as home rent, grocery bills, household expenses, children’s education, etc.) in case of your unfortunate death. You should calculate the amount of life insurance coverage required for your family by using the HLV method for an optimal insurance cover.

    PersonalFN believes that as far as life insurance is concerned, term insurance plans are ideal for covering risk to life as they provide a higher cover for a relatively low premium.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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