Should I convert my policy to paid-up now or a year later??

POSTED BY Chirag Shetty ON August 11, 2013 1:27 am COMMENTS (7)

Hello Forum,

  I have a 15 year (12 premium paying years) Jeevan Surabhi money-back policy for an SA of 2 lakhs with an annual premium of 20k. I wish to convert it to a paid-up policy after realizing the true meaning of insurance but I don’t want to surrender since I don’t intend to lose my money I have already invested and also the tax exemptions I have claimed.

  The policy started in 2010 and I have paid 3 premiums till date and this month (in fact within 3 days) I need to pay the next premium. Hence the total amount paid for the premiums will rise to 80k. The reason I have a confusion is that if I pay the premium this year, I would have completed 4 premium paying terms and as per the policy I would receive 30% of SA i.e 60k. So on the whole, I will only have wasted 20k which I will get back after 15 years with bonus on survival. On death, I would have a higher sum assured for a 4 year premium paying term compared to a 3 year one.

  If I stick with the 3 premium term and don’t pay the premium this year(and thus converting it to a paid-up), I will have no money back and I will have 60k lying in the pot useless for 15 years and with a lesser SA overall.

  What do you all think I should do? Convert to a paid-up now or next year?? Is there any minor thing I might be overlooking?

Thanks for your help!

7 replies on this article “Should I convert my policy to paid-up now or a year later??”

  1. Dear Chirag, if you do not pay the prem. & invest the 20K elsewhere, what ‘ll be your final earning i.e. paid up value + 20K maturity value?

    Interestingly 60K amount ‘ll come to you only in 2014. so effectively, your 4th prem. also be locked for 1 more year.

    thanks

    Ashal

  2. Chirag Shetty says:

    In case of scenario 1, I’ll get the remaining 20K (effective amount paid after 4 years 80k-60k) after the policy term along with the bonus right? Since the policy will remain in effect after converting it to a paid-up one and they will give up that amount too!. So in the first scenario too the overall return will be 0% I suppose?

  3. The first question is, do you have adequate insurance if you die today?
    If not get yourself a pure term life insurance first. Then and ONLY THEN, make this policy paid up.

    Since get a term insurance policy will take a will take at least a couple of weeks, pay the premium this year (assuming you don’t have a term policy) then make it paid up (don’t intimate the insurer until after the premium due date next year)

    If you have a term policy (for a decent sum) then make it paid up right away without paying this years premium.

    I have a surrender/paid up value calculator. It would be nice if you could check the calculator with your inputs and let me know Thanks

    http://freefincal.com/2013/02/02/insurance-policy-surrender-value-paid-up-value-calculator/

    1. Chirag Shetty says:

      I do have a Kotak e-Preferred Term Insurance policy and have completed all the formalities. My real concern was regarding the actual capital I have already invested that would remain idle for 15 years if I leave it now (by converting it to a paid-up policy now), whereas I would receive some amount of it back if I pay the premium this year and receive the money back that will be due and convert it to paid-up after that. I could use the cash to invest in some funds or FD’s maybe. What do you think??

      1. I do understand your concern. Now that the term insurance issue is sorted. I am puzzled by what you say.

        Whether you make it paid-up after 3 premiums or 4, you will not receive any money now. Your money will always be idle for the policy tenure.

        So I suggest you make it paid-up after 3 premiums itself and invest elsewhere.

        1. Chirag Shetty says:

          I am sorry to say but we might be facing a slight confusion here. The LIC policy I mentioned is a money-back scheme and going by what my insurance agent said and also as per the policy benefits mentioned in the LIC website (link given below), I should be getting a percentage of my SA periodically for 12 years which should be 30% if I pay this year’s premium since it will amount to 4 premium paying terms. I would at least get 60k back out of the total 80k I would have invested if I pay this year’s premium which will only leave me a 20k deficit for 15 years OR if I convert it to paid-up right now then the amount stuck up will be 60k for 15 years. Please correct me if I’m wrong about any of this. Thanks!

          http://www.licindia.in/periodic_moneyback_004_benefits.htm

          1. Yes I understand now.

            I ran the numbers in excel and this is what I get.
            year 1 20K paid
            year 2 20K paid
            year 3 20K paid
            year 4 20K paid and 60L received. So net received 40K
            This gives a return of -18.9%

            the second scenario:
            year 1 20K paid
            year 2 20K paid
            year 3 20K paid
            Year 15 60K received
            This gives a return of 0%

            Which would you choose? Instead of paying the 20K premium, suppose you put it in a FD for 15 years and see what you will get post-tax
            Now imagine what will you get with equity.

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