I know this topic has been beaten to death but for me it is important to know that for the second time I am not making a mistake 😉
I am in the process of putting my finances back in shape.
My first and foremost worry right now is regarding the 22 LIC policies which I bought in 2004. The premium is due on 28th May so I have to decide quickly about it.
They will start maturing in 2031 till 2051. The combined yearly premium for them is 40K. So far I have paid around 2.8 lacs (7 years). The surrender value right now comes out to be 1.3 lacs.
Below are the two calculations (out of 22 policies) I have made based on whatever I read on internet.
***Policy: 1***
The Endowment Assurance Policy (T.No. 14)
Start Date: May 2004
Term: 27 years
SA: 75,000
Premium: 2657
Interim Bonus = 48
FAB = 540
Total Bonus = 75 x 48 x 27 = 97200
Total FAB = 75 x 540 = 40500
Total = 75000 + 141750 + 40500 = Rs 212700
IRR = 7%
If I invest Rs 2657/pa at 10% rate of interest for 27 years then the return will be Rs 353938
***Policy: 2***
The Endowment Assurance Policy (T.No. 14)
Start Date: May 2004
Term: 47 years
SA: 60,000
Premium: 1380
Interim Bonus = 48
FAB = 3000
Total Bonus = 60 x 48 x 47 = 135360
Total FAB = 60 x 3000 = 180000
Total = 60000 + 77760 + 180000 = Rs 375360
IRR = 6.2%
If I invest Rs 1380/pa at 10% rate of interest for 47 years then the return will be Rs 13,00,000
My questions are:
1. Shall I surrender these policies? I will be bearing a loss of around 1.5 lacs.
2. If I surrender these policies and start investing the 40K in MF then how much time would it take to recover the 1.5 lacs loss and start earning profit to exceed the returns from the LIC policies?
I was able to calculate
Current Principal: 1.3 lacs
Annual Addition: 40K
Years: 19
Interest: 10%
Final Value 30 lacs but I am not able to compare it with policy returns.
3. Assuming that the calculations above are accurate, I see that Interim Bonus and FAB play an important role so how much fair it is to calculate the final return on the basis of the last year rates declared by LIC? Maybe 5-10 years down the lane they give much better Interim Bonus and FAB. Am I missing something?
Sorry if any of the above does not make sense.