Postal Insurance Delivers Better

Postal Life Insurance (PLI) was started in 1884 as a welfare measure for the employees of the Posts and Telegraphs (P&T) Department. Due to the popularity of its schemes, various departments of the central and state governments were extended its benefits. Now Postal Life Insurance is open for employees between 19 and 50 years (as on the next birth date of the applicant) of all central and state government departments, nationalised banks, public sector undertakings, financial institutions, local bodies like municipalities and zilla parisads and educational institutions aided by the government.

In 1995, the benefits of Postal Life Insurance were extended to the rural populace of the country under the banner of Rural Postal Life Insurance to cater to the almost 60 per cent of India’s population that lives in villages. PLI is a good option for those eligible as it charges lower premiums and offers higher returns than comparable policies of life insurers. To understand the benefits of PLI let’s take a look at the numbers. PLI has announced a bonus of Rs 70 per Rs 1,000 sum assured on its endowment policy – wherein the insured gets the sum assured plus annual bonuses when the policy period is over – irrespective of maturity since 2003.

In contrast, the average bonus announced by the Life Insurance Corporation (LIC), India’s largest life insurer, for endowment policies has been in the range of Rs 30-48 over the past five years. To illustrate, let’s take the example of a 30-year-old government employee. If he buys PLI’s endowment policy called Santosh for a risk cover of Rs 1 lakh for a period of 20 years, he will be paying a premium of Rs 400 every month. For a similar policy offered by the LIC, the Endowment Assurance Plan, the monthly premium is Rs 442.

At the time of maturity, after 20 years, he will receive a total of Rs 2,40,000 at the current bonus rate of Rs 70 per Rs 1,000 sum assured with his net earnings during the course of the policy being Rs 1,44,000. In the case of the LIC Endowment Assurance Policy, the proceeds would be Rs 2,04,000 at the current bonus rates. The rate of reversionary bonus is Rs 42 per Rs 1,000 sum assured, while terminal bonus is Rs 200 per Rs 1,000 sum assured. Thus, the net earnings in the LIC scheme will be much lower at Rs 98,000.

A drawback of PLI is that it only offers death cover as compared to LIC and other insurance companies which offer accidental death benefit with extra premiums. Hence, PLI is not for investors who are looking for equity-linked insurance policies such as ULIPs and pension plans.