Jagoinvestor

October 27, 2009

What to do with your Junk Insurance Policies?

Do you hold any Endowment or Money back plans sold to you by any of your relative, Neighbor or were it bought by your Father for you for your “Secure future”.

Junk insurance policies

Most of the people hold Junk Insurance Policies which are of no much use to them . Policies like Endowment or Money Back Policies hardly bear Inflation and have no ability to meet your long term goals like Child Education, Child Marriage or Retirement.

Note: All the points I have mentioned are generic and might be little different for different policies, but overall it would be similar. Also, points I am going to discuss are for people who are not happy with their policies and want to get rid of them. People who are very happy with their policies are advised to continue the policy.

I will discuss different scenarios and you can see which category you belong to. Before that lets understand some basic things which you might not know.

Top Reasons Why you hold some Endowment Policies

  • You were mis-sold that policy by an agent who promised moons and stars to you
  • You bought that incredible policy because you wanted to save tax in some particular year and you were in a hurry
  • Your Father bought it for you
  • You bought yourself without understanding what it is

what is meant by making a policy Paid up?

It means that you will stop your further premium payments, but your Insurance cover will come down by the same ratio. So if you policy tenure was 20 yrs and cover was 10 lacs , and you have paid your premiums for 4 yrs and then make it paid up , then your cover comes down to 2 lacs , because you have paid for just 20% of tenure.

When you make the policy paid up then you receive all your premiums paid and Bonus accrued till that time (only if your policy has run for more than 5 yrs) at maturity.

What is Surrender value?

Surrender Value is the amount which a policy will pay to policy holder if it’s terminated before the maturity period. Most of the Endowment and Money back plans don’t have any surrender value. Even after 3 yrs, the policy surrender value is very less, Generally it’s the “Net present value” of the amount you are supposed to receive at maturity.

Read why Endowment Policy should be avoided

I have paid Premiums for less than 3 yrs

In this case you don’t have much option, It’s great if you have paid for 1 yrs or less , You can/should just forget the money you have paid and start deploying your hard earned money in something better .

In case you ULIP;s you can continue paying because after 3 yrs the money you can get is equivalent to what is actual worth that time and you have much better control over how your money is invested . But anyways you have done a big mistake . See the list of top mutual funds you can invest in for long term .

It’s like cutting your infected finger and save your whole body to stink later

I have paid premiums for more than 3 yrs but Policy has more than half the tenure to run .

The best thing you can do is to make your policy paid up or take the surrender value and from now onwards put your money in something which you really understand and which can give you better inflation adjusted and post-tax returns .

I have paid premiums for more than 3 yrs but Policy is close to maturity now.

Now it’s too late and you can let it run its whole tenure , You also have the option of making it paid up .

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Important Points

Point 1 # Paying 3rd Premium

In case you have paid the premiums for 2 yrs and thinking of surrendering your policy after that, then it makes no sense, because the amount you pay for 3rd year and what you get back after surrendering will be almost same.

For example : If your yearly premium is 30k, and you have paid 60k in 2 yrs and now want to surrender the policy, but you are afraid that you will not get anything back if you close the policy before 3 yrs and thinking of making 3rd payment, then it makes no much sense.

Because even after paying 3rd premium and then surrendering it, the surrender value will be close to 30-35k only. (surrender value after 3 yrs is around 30-35% of total premiums paid).

Point 2# Getting Stuck

Most of the people just continue their policies because they think “It’s very safe return and let’s not take risk”. You are taking very big risk by continuing, its called risk of “losing all the purchasing power”, agreed that it’s damn safe !!

What you like to get 1 extra day in your old life, by sacrificing 1 hr every day for a year. See how much your policy scores on Gfactor analysis

Point 3# Abandon those “Friendly Uncle” agent

Throw out those emotions, save them for your spouse and parents. Get rid of those agents from whom you bought those policies just because he is your uncle or papa’s friend.

Comments please – Are you one of them who are stuck in those kinds of policies and what is your next step, any other recommendation from your side?

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Vikas Ratnawat
Vikas Ratnawat
7 years ago

Dear Manish,

Thanks for this Great Article!!!

I am also having couple of LIC policies in which i got stucked.

One of my policy completed 5 years and i got my first the money back.

My questions are :

1) If i will not pay the premium of my policy then it become paid-up, Right ?
So once it become paid-up then at the time of maturity we will get the SA and Vested Bonus as well, IS IT ???
How LIC is going to calculate SA and Vested Bonus in case of paid-up policy ??? Will they increase the Vested Bonus every Year???
2) Is it possible to change the term of the LIC policy ???
One of the LIC officer told me that it is possible to reduce the term of the policy, If it is possible the do i will get the Vested Bonus and SA as it is ???

DILIP
DILIP
7 years ago

I WAS FOOLED BY HDFC BANK PEOPLE ,RGDG HDFC SAP POLICY ,I PAID 3 LAKHS EACH YEAR ,LOCK IN PERIOD WAS 3 YEARS THEY SAID,SO I WAS ABLE TO PAY ONLY 9 LAKHS ,AFTER THT I STOPPED DUE TO FINANCIAL PROBLEMS,2018 10 YEARS WILL BE COMPLETED,WANT TO KNOW HOW MUCH WILL I GET BACK.AND I WANT TO LODGE A CONSUMER COMPLAIN ALSO.PLS REPLY

sudheer
sudheer
8 years ago

Hi
I have been paying 28000 per year in Kotak money back policy ULIP, i’ll be completing 5 years by this month and i got 80000 bonus which is credited into my bank account.
Now my question is that is it wise to surrender this policy now. ‘(I dont want to continue this policy from long back ago)
will i incur huge loss? can you please suggest me on this.

Regards,
Sudheer

RaghunathS
RaghunathS
8 years ago

Dear Manish,

I was missold two HDFC ClassicAssure Policy Plus of 7 years and 10 years premium paying terms. The HDFC agent had ‘assured” me that the policy would be converted into a One-Time Single premium payment, as I had mentioned that I cannot pay the premiums for such a long time. My total annual premium is Rs.100,000 and Rs 40000. I have paid the first year premium on both. As with others, the agent is not contactable now and the company is not willing to convert into a Single Premium.
What is my recourse – should I continue to pay till 3/4 years to get the surrender value ; or should I stop paying any more premiums.
Thanks
Raghunath

abey samuel
abey samuel
8 years ago

I have Lic money back policy cover 500000 started in 2004 with a premium of 32000 per annum,paid 12 premiums so far. I got 100000each 2times as moneyback.Sir,if I want to surrender the policy this year how much I will get?

Ajay
Ajay
8 years ago

Manish I have “Jeevan Anurag” LIC Policy with a premium of 20000(Half Yearly). it is started in April 2013 and I have paid 5 premiums. If I pay 6th premium of 20000 and surrender it than I will get only 24000 as surrender value. Of if I make it paid-up after 6th premium I will get 105000 after 20 years. I am getting confused. Should I make it paid up of surrender it. In Surrender case I will get only 4000 and in paid up case I will get 1L after 20 year.
Please Advise.

Ajay
Ajay
Reply to  Jagoinvestor
8 years ago

Thanks Manish for reply.
As my policy started on 25-april-2013 and I have paid 5 EMIs and my 6th EMI date is 15-Oct-2015, whereas 3 tears will complete on 25-April-2016.
So my question is Shall I have to pay 7th EMI on 15-april-2015.
Or just 6th EMI is enough to make it paid up.

HImanka
HImanka
8 years ago

I have a traditional LIC policy with a premium of 24000 per year. This started in 2005 but after going through your articles I have stopped paying the premiums. Do I have to do something to make it a paid up insurance or it automatically becomes paid up on stopping the premiums.

AMit
AMit
8 years ago

i have 20 year LIC money back policy with premium 2696/ mnth
started in jan 2012
now i wanna surrender my policy
how much money I’ll get back

Raul
Raul
9 years ago

Hi Manish,

Thanks for this excellent article. After reading this I have realized that I have made a big mistake by purchasing below 2 LIC Policies

1. New Money Back Plan
SA-500000
Term-25 Years
Yearly Premium- 25666
Started Mar/2008 and 9 premiums paid till date

2. Jeevan Anand
SA-1000000
Term-21 Years
Yearly Premium- 50782
Started Mar/2013 and 3 premiums paid till date

I also have term insurance of 1 cr whose premium is around 8k

I want to know if its advisable to continue with these LIC policies or Surrender/Paid up these policies. Your valuable suggestion will be really helpful.

Thanks.

Arindam Panja
Arindam Panja
9 years ago

Hi Manish,
Thanks for the nice article, after reading this I understand the mistake I made by taking three LIC policies at beginning of my career. Now I am focussing on correcting my financial life, out of these 3 policies I got rid of one last year, surrendered one. This year I stopped paying premium for another one making it paid up. I have one questions for you, which came to my mind as I was reading somewhere there are some tax implications in surrendering policy. It would be great if you could throw some light onto it? The one I surrendered was LIC’s Jeevan Tarang.At end just wanted to share, I have become a regular member of jago investor club. I have been reading your articles, books. I must say I have become more aware as an investor. You are doing a fantastic job. I wish if I could join this club earlier -my financial life would have been in better shape now, anyway better late than never.

Arindam Panja
Arindam Panja
Reply to  Jagoinvestor
9 years ago

Thanks Manish..

Girish
Girish
9 years ago

What a post !
I am lucky. I have read it before I buy any LIC policy.

Umakanth
Umakanth
9 years ago

Dear Sir,

I was readind your article and thank you very much for help.I have following queries
My neighbor who is Agent in max life insurance sold me 75years Endownment plan with 2 policy to pay 50000 per year for 3 year each.

I already paid 3 lakhs for 3 years and would like to surrender my policy due to personal financial problem

kindly request if i surrender my policy how much money i get it back and what important factor to look at.

Thank yo for your help and advice

Kshitija
Kshitija
9 years ago

hi i have LIC jeevan tarang policy sum assured 10 Lac, im paying yearly premium of 49920, tenure is 20 years , i have paid 2 premiums. After following your blogs , want to close the policy and switch to term insurance+mf. so should i wait to pay one more premium so that i can paid up or surrender the policy after 3 years? or i should close my policy as soon as possible and put money in other products? My father bought this policy for me…but i dont think i should continue this. Thanks for ur blogs…im reading your book 16 principles… its also very nice and eye opener. Plz help for lic jeevan tarang.

Deepak Tiwari
Deepak Tiwari
9 years ago

Hi Manish. I have been sold Max Life Gain plus by Axis bank. I paid 50K but now that I have read about the drawbacks I want to surrender it. As I know I won’t get any money back from them but comparing the potential loss and gain from paying the rest of the amount, I think it’s OK if I don’t pay.

Now the issue is that I put an FD of 1 lakh and ordered the bank to credit the amount to fund the policy. What is the option to me. Shall I say them before one year completes, will they deduct the amount. Please suggest.

Prasad
Prasad
9 years ago

I was wrongly sold Max Life life gain plus 20 participating plan in May 2013. the annual premium is around 31k. I had decided to not continue the policy by not paying any premium from 2014. but today (12th sept 2014) I got a call from Max life agent. she told me to pay atleast 3 premiums and surrender the policy after the 4th year. according to the agent, the 1st premium is also refundable. but I dont think so. Please confirm

Sahil
Sahil
9 years ago

Hi Manish
i have enrolled in jeevan surabhi 107/20 money back … i have 2 installment that i have paid (26,628 each). I have money back at 4th year 75000(25* of SA). I want to surrender this policy. Should i do it after receiving money back or should i do it now..?

A Deb
A Deb
9 years ago

REPLY AWAITED .

A Deb
A Deb
9 years ago

Hi Manish,

I have HDFCL Classic assure plan with premium of 30K /year, premium paying term 7 years. Policy terms 15 years. sum assured: 233726/-. started on 30.8.2011. Paid last on August 2011, 2012 & 2013. now this month is the another premium date.

Due to financial crisis, not in a position to continue further. What to do Now? Shall i surrender or Paid Up, so that i can get maximum benefit. ( surrender value : first year Zero, 2nd & 3rd year 50% only).

If i go with Paid up , what will be the affect on premium/ refund?

Rgds,

A.Deb

Puneet Sharma
Puneet Sharma
10 years ago

Hi Manish

Thanks for the article. It is quite useful.
I’m holding 11 endowment policies (7 preniums paid) & 1 Jeevan Saral (6 premiums paid). Details are as follows :

Plan-Term-D.O.C-Inst. Prem(Rs)-Sum Assured. :

14 – 20 -1 5/01/2008 – 2,957- 60,000
14 – 21 -1 5/01/2008 – 2,808- 60,000
14 – 22 -1 5/01/2008 – 2,451- 55,000
14 – 23 -1 5/01/2008 – 2,337- 55,000
14 – 24 -1 5/01/2008 – 2,082- 50,000
14 – 25 -1 5/01/2008 – 1,995- 50,000
14 – 26 -1 5/01/2008 – 1,915- 50,000
14 – 27 -1 5/01/2008 – 1,842- 50,000
14 – 28 -1 5/01/2008 – 1,777- 50,000
14 – 29 -1 5/01/2008 – 1,996- 60,000
14 – 30 -1 5/01/2008 – 1,926- 60,000
165 – 25 -1 5/01/2008 – 18,015- 375,000

Till date I have paid INR 1.68 lacs for these endowment policies and the surrender value is INR 1.02 lacs.
And surrender value for Jeevan Saral is INR 27 thousand against INR 1.08 (premium paid)

After deciding to surrender these policies, I happened to consult a senior LIC agent (other than the one who sold me these policies), who informed me that if I surrender these endowment policies after paying 10 annual premiums, I will atleast get back the total of all premiums paid till that time. Is it correct ? I have a doubt since , I could not find anything on the web related to this. Could you confirm please.

If it is true, and if I make my policies paid up right now, and surrender them after 10 years from D.O.C , will I get back the total of all premiums paid till date ?

Thanks.

Sivakumar
Sivakumar
10 years ago

Hi Manish,
I have a Traditional childrens plan from HDFC life bought on Jan 2012. The SA is 15L, period is 20 years and yearly premium is 75000. I have already paid 3 premiums and I have claimed 80c deductions. I have made up my mind to surrender the policy in 2015. Could you please tell if there would be any tax on the surrender amount?