POSTED BY December 22, 2010 7:35 pm COMMENTS (38)

ONPosted Date: 21-12-2010

I’ve seen this question at many places but I couldn’t find the perfect answer. Even my question has another point too.

I’ve taken Jeevan Anand policy in Nov, 2005. I wanted to surrender this policy now. I wanted to know the surrender value of it if I surrender now.

Here are policy details.

Sum Assured: 300000

yearly premium: 15916 (Quarterly payment)

Bonus accumulated till now: 67200

I read in some articles that I get 40% of the premiums paid excluding first year premium + bonus accumulated till now.

Is this correct or anybody who has idea or surrendered this policy after 5 years can tell me the value I’m going to get?

I hope this will also help many who are in dilemma whether to surrender it or not.

**Update: **Out of curiosity I’ve gone through the policy document, they have mentioned the surrender value part in that. It says** “After 3 years of active policy, Minimum 30% of all the premiums excluding first year premium and also if there is any bonus vested for the policy.” **

I hope this stands true even when I visit the branch. This way it shouldn’t be any loss for me if I surrender this policy now. It will be more than I paid for this policy.

Please correct me if I’m wrong.

**Assumption: As per the statement given in the policy document.**

Premium paid till date: 15916*5yrs = 79580

Bonus declared: 67200

Surrender value: 30% of 4yrs premium + bonus

**Value (15916*4*30%) : 19099 + 67200 = 86299**

if I wait till April 2011, so that I can add the bonus of March 2011, then I’ve to pay one qtr payment in Feb 2011 which is 3979 and I can expect (40rs/1000) 12000 bonus.

This case I’ll get : **20292 (30% premium) + 79200 (bonus) = 99492 **where as I paid premium since inception is **83559.**

If this assumption comes true when I visit the branch, then as many people said I’m not losing any money instead I’m getting more than I paid which is around 16000. Even if I surrender now I’m getting more (6000) than I paid.

Can anyone differ with this assumption, or any inputs questions?

I want jivan anand policy term should be 20 or 21 for me.sum assord 250000. Which term more benificial for me 21 or 20.

I dont suggest this policy !

Dear Manish or Shashank,

Thanks for your nice analysis above. Me too would like to benefit from your expertise.

I hold the below policy:

Policy = Jeevan Anand (Table 149)

Sum Assured = Rs. 1,00,000

Annual Premium = Rs. 5,602

Premium Paying Term = 21 years

Premiums Paid So Far = 8

Vested Bonus = Rs. 37,000 (as shown in LIC portal today)

I need advice on:

What would be the maturity value if I continue?

What would be the surrender value if I surrender now?

What would be the paid-up value if I stop further payments?

What would be your advice – surrender or paid-up?

Thanks in advance.

Rajesh

hi PPL

i have LIC JEEVAN ANAND policy

and a monthly premium of 10,354.

was my decision wrong about such large policy

policy duration is of 35 years

is it worth..!

experts plzz plzz reply

Nice place to to know about surrender value, I find a link to some site arthaplanner.com. go to link and calculate your surrender value.

http://arthaplanner.com/personal-finance/calculate-lic-policy-surrender-value/

I’ve done some calculations after Shashank’s reply. Shashank I need your valuable feedback after looking at my reply. That will help in me in judging whether I’m going in right direction or not.

I think before giving explanation regarding what will be my approach for this LIC policy, I thought if I give an idea about my current financial planning then it will give you better view to suggest me whether I’m right or not.

I’ve done all my financial planning by identifying all my goals in future including retirement and started investments as well for the same. I’ve started this process since mid of 2009 and it is going well till now with few reviews and thanks to Manish for educating me about this financial planning with his wonderful blog.

Including current assets and future wealth I’m going to generate, everything about my current and future financial status is very clear in my mind and I’ve already isolated this LIC policy from all this planning, so whatever I’m going to do with this policy is not going to affect my current planning. Whatever will be the output of this decision it will be helpful to improve some of my goals or I may add some goals kept on hold (you may say they are luxury) to my current planning.

Let’s come back to our discussion about policy:

First let me give my answers to the 3 points which you have mentioned. As per the above explanation about my financial planning, I don’t see a need to think about all these points as this decision is not going to affect my current or future plan. Please correct me if I am wrong in this perception.

Now, I’ll discuss three options which I’ve in front of me: (inflation is not considered in these options)

1. Continue with the policy: At the end of the term I’m going to get around Rs.556000 and for the next life term may be till I reach 70 (not sure about the exact figure) I’ll have sum assured value of 300000 on death. In this case I’m going to pay total premium of 334236 for the entire term of the policy. That means I’m going to get 4.5% return on my investments. I’m not sure how should we calculate on the return part for the sum assured continued after the policy term.

2. Make it Paid up now: In this case there is no use if I mention about the amount paid till now towards the premium, so lets calculate the benefits. If I make it paid up I’ll get 75000 sum assured till the term and bonus 67200 at the end of the term, which is 142200. No SA after the end of the term. Till the end of term I’ll redirect my premium amount 1326/month in equity or wherever I get returns near about 12% then it will yield 770907 as per the SIP calculator at Jagoinvestor.com. Hence, I’ll get total of 913107. That’s good amount than 1st option.

3. Surrender the policy: After surrendering now I’ll get around 45000 now. I invest this amount in complete equity where I can expect 12% returns, then that will be 275868. Or as I said in my earlier post that part pay my home loan which is at 12.5% interest rate now. This will not change my current plan because my tenure will come down so that will help in same way as investing this amount now. Now remaining premium amount invested in equity will fetch same as above 2nd option which will be 770907. If I ignore part pay of home loan then at the end of the term total amount will be 1046557. Quite a good amount than other options.

So, based on these options, for me 3rd option looks good. Now, I should think about the other factors as well, such as tax on returns and fulfilling tax slabs, portfolio balancing etc. From my basic knowledge I think after tax, returns of option 3 will still beat the option 1 and 2. Regarding portfolio balancing I’ve already adjusted it to 75-25 and this amount does not impact much on this portfolio balance part. Please correct me if I’m wrong in my analysis.

I’m thinking of choosing option 3 (you may ignore the decision of part pay or invest). Please let me know your view on this.

Oooof, this has become very big reply. After writing this analysis, I’ve to admit the fact that I’ve thought about your patience a lot during this write up. I took couple of hours to complete this because I couldn’t sit at one place and complete this at one go. If I’m feeling this for single post, what about you for posting so many replies different people with different views and opinions. Hats off to you and keep up the good work and keep educating us. Thanks Shashank.

One more point to add to the above reply:

If I consider IRR calculation for the second option which is making it paid up and take 142000 at the end of 21yr term (after 16yrs) then it the IRR value is 3% and I dont think that is also good option now.

@Jayprakash

The answer would depend on the individual circumstances and situation. What might be good and sensible solution/line of action for me need not be equally good for another. But thinking of following points is important in all the situations.

1)”What else I would be doing with this money” principle:

If I shift from a particular course of action; here in your case, moving the premium amount in some other route, will it improve my situation as compared to the previous path continuation?

See, Krishna has discovered this thing (in the question he has posed to Manish). He sees that essentially the situation is not improving whether he surrenders or makes paid up and chooses other paths which would fulfill his needs of returns and tax saving. On that 15 year time scale/horizon things look just the same/close to make any significant differences in them. (One more thing he is completely neglecting is that his ‘asset’ creation if the demise occurs will be drastically reduced, because he has not chosen a cover to replace previous cover in the old path. He wants to concentrate only on the real returns and the tax saving angle only, probably the only reason why he bought that plan in the first place!)

2) “What else is happening/ I’m doing with the rest of my money” principle:

How much is the proportion of this investment compared to rest of my investments? So what is the overall impact of this investment on my total scenario?

We usually focus our attention on the particular investment/plan only and loose the perspective of the broader picture which we should consider. The comparisions we enter into are absolute; whereas they should be relative. Relative to alternate investment, overall scenario and relative contribution necessary for the financial aims which are going to be fulfilled/supported through these at the maturity time in future.

3)” How the human capital is being made to work today and in future” principle:

How is your income today? What has been your past career and income graph? How you see your future career and income unfolding and what steps you are taking to improve your abilities through further skill/ability/certifications improvements.

This gives us even a broader perspective of looking at the income/wealth generating potential. The financial capital and the human capital both play the role our financial planning, our goal fulfillment and the overall welfare.

So in the total context of future how much impact this particular investment is going to make is to be understood.

So now instead of me telling you what is to be done, you tell me what you think is the correct path of action!!!!!!.( My suggestion is ready based on the data you have shared, but will tell you after listening to what you say about above write up)

shashank

Hi,

I am planning to leave the policy as it is surrender at the end of term. Is that a good option?

Krishna

Jayaprakash,

The surrender value could not be that much less,you can recheck with them you may loose 1st year premium in your case you are loosing more than 2 years premium.

@ Krishna,

The surrender value is higher if the policy tenure is less. You will notice that both of you and Jayprakash are having a cover of 3 L. But your tenure being 15 yrs as compared to his 20 yrs, there is a substantial difference in the premium also. Your is @24000, his is @16000. (Here I’m assuming as if both are of same age). Had the tenure been 10 yrs the premium would have been higher for same SA and the surrender values too would have speeded up i.e. a shorter duration plan would pay back more premiums than a longer duration plan if both are surrendered after equal no of years.

But you are facing a quite interesting scenario, creating real dilemma what to do, huh?

shashank

Hi Shashank, that’s a good information.

Yes I’m in quite interesting and tricky situation. What do you do if you are in this situation?

Finally, I got the information from the LIC call centre, I think they have improved a lot in this regard. Thanks shashank for guiding me towards this source of info.

I’m told that my policy surrender value is 43453. This amount is without considering the bonus declared in March 2010, i.e. they have calculated this amount with bonus 53700, but when March 2010 bonus is included then my current bonus will be 67200. So, my surrender value may increase a bit and may come around 46k. If I make this policy paid-up then I’ll get 75000 insurance + bonus accrued (67200) till now in the year 2026.

Now this is a tricky decision for me. I have to think about couple of options now.

1. Surrender the policy and part pay my home loan which is at 12.5% interest rate with that amount and increase the EMI to the extent of this policy premium amount or more.

2. Make it paid up policy and wait for the amount till 2026.

May be they are avoiding to answer this question of surrender value on help line just to try and keep the customer with them by increasing one face to face meeting with him in the branch where the staff would try to disuade the customer from such a decision.

Try the other tact, ask how much loan you can get. Loan amt is maximum 90% of the surrender value and do the reverse calculation!

@jayprakash,

U just have to call up LIC’s helpline/customer care to know surrender value and such details. Why don’t u try it?

shashank

Shashank,

I tried that last year, and they said visit nearest branch. Let me check if they are gonna help me this time.

Hi Jayaprakash,

Did you surrender the policy?.

Krishna

Krishna,

I’ve been visiting LIC branch near to my place since last couple of saturday’s. Its not feasible for me to go on week days. Last two times they said their system is not working and they cannot give the surrender value at the moment. I hope I’ll get it next saturday.

Hi,

I require Manish views here :If I surrender the policy and invest the surrendered amount (48K) in equity diversified fund I may get 1.62000 assuming 12% retun. The premium money invested (1979 per month) in a PPF yields around 4,19,517.Hence totally it is around 5.81,000.Which is more or less equal to the total amount I may get by running the policy tenure fuly by paying the premium.

Note: I am assuming the amount to be invested for PPF because there is no provision for ELSS in DTC.Else it would have beaten LIC Policy.:

Please clarify.

Krishna

Hi,

I mean to say that if you surrender the policy at the end of policy term you will get back the amount which you have paid so far. A nominal amount gets added to the surrender amount (which is now 48 k in mycase) on each year till you surrender the policy. If you surrender at the end of policy term you may get back what you have paid. Hope I am clear now.

Krishna

Hi,

Yesterday I visited the brach they told that i will get surrender value of 48k which is equal to amount of premium paid for 2 years. If you surrender at the end you will get nominal bonus which gets added every year the total amount may be equal to the the total premium paid for 3 years. What about you?. Did you visit the brach?

Krishna

Hi Krishna,

Thanks for the information. No, I’ve not been to branch yet. I’ll go there this saturday, I’ll update you after that.

By the way I didn’t understand your second statement “If you surrender at the end you will get nominal bonus which gets added every year the total amount may be equal to the the total premium paid for 3 years”

You mean make the policy paid up now and take the money at the end of the term to get the bonus?

Hi Suresh/Jayaprakash,

Thanks for the inputs. Even I am planning to visit the branch on Monday let me get the details there. As Manish says the endowment policies are puzzles which are difficult to solve. 🙂

Krishna

When a person see a complicated thing , it attracts him , because he cant understand much , he feels that just because its complicated , it would be good .

You can see all the products which were simple , easy to understand and best are not popular , things like term insurance , mutual funds and other things like endowment , ULIP’s , Highest NAV plans , child plans are all selling like hot cakes !

Manish

Hi Manish,

You are obsoletely correct, though I’ve never observed such things earlier but nowadays started observing all these things in my surroundings and finding quite interesting when people tend towards them very fast.

Hi Krishna,

Please share us the information after you visit the branch.

Hi jayaprakash,

No they did not give me any formula I seriously doubt whether they themselves are aware or not as it is complicated formulae 🙂 I think he referred to online portal prior 2-3 mnths it was available online @ http://www.licindia.in .Now they have removed that information. Need to check with them before surrendering the policy.

Regards,

Krishna

In LIC portal, for a enrolled policy you can see the Bonus and Loan amount.

Loan amount is 90% of Surrender value. Based on this you can calculate Surrender value.

I am 95% sure on this info

Hi Suresh,

Thanks for the valuable information, you are correct even I read this info on a blog. I hope that solves my confusion after I visit the branch. I’ll get all the details from the branch and I’ll post it here.

Hi Shashank,

Can you help me as well as I am also a victim of same policy Jeevan Anand. Policy term is 15 years.Premium is Rs.5936/-per quarters.Sum assured is 3lakh.

I have paid up 3 years premium and So far I have avoided the paying the premium of 3 quarters and the agent is behind me to revive the policy. He is giving the reason like the govt.policy may change at any time and all the amount you have paid up will be lost. Please suggest me whether i can surrender the policy or make it paid up one.? I enquired in the branch the surrender amount would be Rs.46,518.

Regards,

Krishna

Hi Krishna,

Its interesting to hear that your policy surrender value is 46518? How can it be? Because as you said you paid 3yrs premium which is 71k and if we consider only 30% of premiums excluding 1st yr premium then it should be around 15k only, how come it is 46k. This is just a doubt, did they give you any calculation about this surrender value at the branch?

Please let me know if they have given you any additional information. Even I’m planning to visit the branch, so would like to have more information from you before that.

Hi Shashank,

Can you please help me on the below?

I had taken a Jeevan Anand Policy, details are SI 3lacs, term 15 yrs, Premium is 11692 half yearly payable. I have paid 6 premius so far (i.e. 3yrs). 7th is due this month.

My problem is, should i surrender or make it paid up. I dont want to pay any premium from now on.. and will invest in some deversified equity MF thru SIP.

I saw LIC portal and find –

Accrued Bonus and Loan Eligibilty

Plan 149

Policy Term 72

Accrued Bonus 33,300.00

Loan Eligibility Amount 25,250.00

That means, surrender value shall be 28k which is peanuts!! when compared to the premium which i’ve paid 70k.

To make policy paid up what i have to do? do i need to inform the agent ot LIC?

Please help.

Regards

Pramod

Hi Jayprakash,

1)I ‘ve arrived at these figures as I have created a thumbrule and kind of memorised it regarding the surrender values of savings type plans from the surrender value tables given in the agent’s handbook of LIC.

I have correlated the no of yrs the premiums are paid , tenure of the policy and surrender value it generates . Then I have converted these surrender values to the no of premiums we get back. So in a 20 yr endowment plan after 3 yrs we get @1 prm back, after 5 yrs @2.5 prms, after 12 yrs @12 prms back and then after that surrender value is more than the prms paid and so on…… and at the maturity surr value and the cover would become same and 42 prms will be paid. See, I’m a financial planner and need to know these approximate values to capture a clients scenario quickly without resorting to refference materials too frequently. So in a way these are just tricks of the trade you can say!

Yours is not a endowment but a combination of endow and whole life, so the calculations differ a little.But you kindly get the exact surrender value from LIC’s helpline. There should not be more than 10% difference plus or minus than my guess, I think.

2) Paid up value= 75000+67200 = 142200

This much cover will continue till maturity. There will be no additional bonuses. At the maturity you will get the bonus amt and the 75000 cover will continue for life as it is a endow+whole life plan.

3) Following questions carry my comments.

http://localhost/jagoforum2/comments-on-jeevan-tarang-life-insurance-policy-by-lic-with-profits-table-no-178/701/

http://localhost/jagoforum2/surrender-value-icic-forever-life-pension-plan/704/

Regards,

shashank

Thanks shashank for clear explanation. I will take my decision once I visit the branch and clarify all the things.

Jaypraksh,

Sorry to give you this shock but I don’t think you will receive more than 40-45000 as surrender value in this policy. Bonuses are not cash values but they are additional cover values, which the beneficiary get in case of death or paid to you in cash at the end of the tenure. So the bonuses which are reversionary i.e. declared today but paid at the end are not to be understood in the usual sense of bonus, which is a cash amount available/paid immediately.

My advice- do not surrender it, make it paid up. That is- just stop paying the premiums and a proportionate cover based on the number of premiums paid to the total premiumsduring the tenure+vested bonus would be offered during rest of the tenure.(called as paid up value)

You would receive this paid up value at the end. Making a policy paid up is a much better solution than surrengering it.

(I have written on this in details in a reply to one of the querry on forum)

shashank

Hi Shashank,

thanks for the reply. This is really shocking for me if bonus is not paid. Anyhow I’ve couple of questions based on the explanation you have given.

1. How did you come to the figure 40-45k? Is that figure got it from the above numbers I’ve given?

2. You suggested to make it Paid-UP. This is a 20yrs term policy and I paid 5yrs premium, hence they will decrease the cover to 25% which is 75000 (original cover 300000) I hope I calculated it correctly. If so, then which one is best – surrendering now and taking that money and investing where I get better returns or continue with it and take 75000 after 15 years. In your view which one is the best return (75k after 15 years or 40k invested for 15years now)?

3. If I make this policy paid up then do they pay me bonus (bonus accumulated till now, if not future additions of bonus) as well after the end of the term?

4. Can you please point me to the forum question which you have answered it in detail?

Thanks Shashank.

Hi Jaya Prakash,

From where did you get that figure for the Bonus (67200). Is it your assumption or did you get any info from LIC?

Hi Arudra,

I got that information from LIC portal. We can find our policy complete information in that portal if register our policy.