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POSTED BY ON February 22, 2013 8:56 pm COMMENTS (20)
Hello all,
I am 26 years old salaried employee earning Rs.20,000.00 per month. Recently I took 2 LIC policies. I wanted to save Income Tax and secure my future.
My policies are
1. LIC Jeevan Saral (With Profits), premium Rs. 24,500.00 per year for 35 years while the sum assured is Rs. 10,00,000.00 (approx.)
2. LIC Jeevan Anand (With Accident Benefits), premium Rs. 24,500.00 per year for 25 years while the sum assured is Rs. 5,00,000.00
The premiums are to be paid quarterly. So far I have paid Jeevan Anand + Jeevan Saral Rs.(10,662.00+12,250.00)=Rs.22,912.00
After reading the articles in this blog I am thinking that I have made a huge mistake. The premiums I paid are my hard earned money.
When I contacted the Agent, he said that after 10 years the Jeevan Saral policy can be regarded as liquid money and I can get back all the paid premiums along with bonus and interest.
My questions are:
1. Should I discontinue with both the policies or carry on with one and discard the other?
2. What my agent said about Jeevan Saral Policy holds any truth?
Your precious and honest reply is earnestly solicited.
Thanks,
Ajita
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Hi, I bought LIC Jeevan Saral policy back in 2009. The sum assured was Rs. 500,000 and the policy was primarily bought as a pre-condition for taking an education loan from the Union Bank of India. My yearly premium is Rs. 24,020 and I have already paid 6 premiums. I spoke to the LIC executive today and he told me that if I surrendered the policy today I would only get Rs. 1,17,940. My LIC agent (whom I am not too inclined to believe) has also told me that I should keep the policy for at least 10 years. Having read everything on this here and elsewhere, I feel like I should make the policy paid up. What do you think?
Dear FFC, the reversal of 80C, only happens when we are getting back our money before the lock-in like 5Y for home loan principal. Here in the given case, there is no return of money, hence the question of benefit reversal does not arise.
Thanks
Ashal
Like I said I thought about this. I am sill not convinced. I will speak to a CA to check if you are right.
Dear FFC, if Ajita had paid first prem. claimed Income Tax benefit on it under section 80C & stop paying more prem. in future, no issue from Income Tax point. The important thing in her case is she is not surrendering the plan, just stopping the prem. payment. So her case does not qualify for Income Tax benefit reversal.
Thanks
Ashal
I thought about this. If we make a policy paid-up the contract with insurer continues,so no question of 80C reversal. Surrendering terminates the contract and surrendering before 5Y implies 80C reversal as per current tax laws.
In this case stoppage after 1 premium terminates the contract as there is no paid-up value. This is the same as surrendering with zero surrender value. Which would imply 80C reversal the way I see it.
Would need to consult a CA to be sure.
Dear FFC, just extending your though process. I stop prem. now, restart after 1Y, stop again after 2-3 years, start again after 4-5 years….. ON & OFF & ON ……
What ‘ll be the situation?
Stopping prem. is not similar to surrender as I’m not getting back my money which I invested & claimed tax benefit on it. This is same as Home Loan, Principal related benefit is reversed but Interest not. So the question of 80C reversal does not arise. Still It’s a good idea SIRJI to contact a CA. 🙂
Thanks
Ashal
restarting payment within policy rules implies the contract is on. No question of 80C reversal in this case. stopping payment before policy acquires a paid-up value and not reviving the policy is the same as surrendering with zero surrender value is how I will interpret it.
@ Ashal Jauhari, Thank you.
Dear Ajita, PPF account is same in PO or bank. the difference comes only on the service front. In my personal opinion, please open it with a bank.
Thanks
Ashal
Dear Ajita, just stop paying prem. from here on wards & you ‘ll save yourself from a lot of pain later on. Please accept your loss as a learning & prepare yourself to educate enough that next time, you are ready to invest only after understanding the product & if it does not suit you, you can say ‘NO’ to the agent. 🙂
Thanks
Ashal
Dear Ajita, do you love your own family or your agent’s & LIC staff’s family? A plain answer from my side to you is – Please surrender both policies right away. You should purchase a term cover of at least 50L Rs. The prem. ‘ll not be more than 4-5000 Rs. if you purchase online (depending upon your age). Now one interesting thing for you, the saved prem. if invested by you in a simple product like PPF, your original objective of saving tax is fulfilled & at the end of your term, the money received from PPF ‘ll be far higher than these policies.
Don’t go by my words, check on your own. Calculate.
Thanks
Ashal
@ Ashal Jauhari, I think I did loved my agent’s family much more than my own. Honestly, one of my colleague laughed at me while he saw the amount of my LIC premiums. What kind of PPF is better option? Bank’s or Post Office’s..
thanks for answering.
Dear Ajita,
If I were you then I would have surrendered both the policies accepting all those TEMPORARY losses that could happen while surrendering and started investing in Mutual funds and PPF (considering the premium 4083/month ie; 20% of CTC ).
Thanks,
vipin.
@ Vipin Mohan, thanks for answering.
I forgot to mention the sum assured in those policies.
Jeevan Anand Rs.5,00,000.00
Jeevan Saral Rs. 10,00,000.00 (approx.)
It is an unintended mistake.
The most important information is when you took the policies. Assuming you took them less than 5 yrs ago:
If you have claimed 80C deductions with the premium then they will be cancelled and you will need to pay tax on that amt when you surrender.
If you didt claim deductions you could consider surrendering. If you did simply stop paying premiums. If the policies are less than 3 yrs old you will get nothing. Otherwise they will become paidup. In both case you will cut your losses.
@ Free Financial Calculators, I took the policies on October’12. I have claimed tax deduction on them. I cannot surrender those policies now. If I don’t pay premium those policies will just become void. If I don’t receive anything from LIC, then why should I pay tax on them?
Thanks for answering.
Dear Ajita,
I am not talking about tax on the money received from LIC. I fully understand that you will not receive anything. So no tax on that.
I am referring to the 80C deduction. If use it for income tax deduction this FY and not continue your polices, THEN the deduction will become invalid and you need to pay tax on the amt claimed as deduction. Hope I am clear now
If you want to get out of the polices don’t claim 80C
You fool. When LIC is eating 100% of the money then why should he again pay tax on it???
If this:
“10 years the Jeevan Saral policy can be regarded as liquid money and I can get back all the paid premiums along with bonus and interest.”
is not in the policy wordings (I don’t think it will be) then it is not true.
Your total monthly prem is about 4083.
What you should do with these policies depends on what your financial goals are (how much you need for retirement and other needs).
Say you are going to use this policy towards retirement and that you need to save say 15,000 each month. The 4083 is less than 30% of the amt reqd. IF you invest the rest intelligently say in equity mfs etc. then and only then you could continue the polices.
You say you took them recently. This is important to what you are going to decide.
I suggest you read this, use the calculator and them make an informed decision
http://freefincal.wordpress.com/2013/02/02/insurance-policy-surrender-value-paid-up-value-calculator/
You can use the goal calculators there to calculate the amt you need to invest.