Traditional insurance policy surrender

POSTED BY Aman Gupta ON October 5, 2012 2:04 pm COMMENTS (2)

Hi,

I have two LIC policies which I started back in 2009 — which included a retirement plan even before my first job, to rake in the “power of compounding” 🙂 but now it seems to be a naive decision taken under influence of family friend LIC agent.

 

Policy details:

 

LIC Jeevan Saral — Annual premium Rs. 18,376

LIC Retire and Enjoy — Annual premium ~Rs. 38,000

 

It’s been 3 years since I’m paying these premiums which makes around Rs. 1,70,000.

As I have roughly calculated if I surrender now I will incur a loss ranging to amount Rs. 1 lac or more.

 

By going through all the online material I very well understand that a combination of term plan+MF+PPF is the best financial option for salaried personnels.

 

But my question here is, do the LIC policies are really such sore investments as to be ready to part with 80% of your already invested amount, considering following factors in mind:

 

1) Tax free income, both on investment as well as return — should not we add this percentage in our returns considering income tax in India ranges to 20% to 30% of your income. This itself adds 1.5 to 2% to my net returns

 

2) Guaranteed returns — Though in long run MFs have generated 15% to 20% but market is down from last two years and if I decide to withdraw my money right now I would not even get my original investment back

 

3) Not putting all eggs in one basket — My annual income is around 10 lac per annum, considering that parking around 56000 in safe no-risk investments which will generate my around 7-8% post tax returns with an additional life cover don’t seem to be too bad an idea to me

 

4) Disciplinary investment — This is something which cannot be evaluated in monetary terms but to be honest I have not seen too many people continuing with 20-35 years SIP plans because they always have the option to quit but in LIC you cut down on your leisure trip and pay premium because you know you will lose money if you don’t and when you are looking on term of 20-35 yrs you never know what ups and down you might have to see or if not down, just the moment of weakness

 

In no way I am trying to justify investment in these plans and I have taken a pledge and even keep educating others about not investing in these plans.

 

My whole question is about the point HOW bad they are to consider losing such a big portion of your hard earned money. I had given all these premiums by sacrificing small pleasures of life which a first time earning youngster usually have and it pains me a lot to decide on losing money which I had saved so religiously.

 

I know it’s a long post but will mean a world to me if you reply to me. I am considering of surrendering these policies from last 1 yr but prospect of losing money don’t let me make the harsh decision.

 

Thanks in advance. 

2 replies on this article “Traditional insurance policy surrender”

  1. Aman

    I want you do an exercise . FInd out the alternative plan , what you will do with rest of your premiums if you have an alternative plan ? Lets call it as plan B

    and continuing the LIC policies is plan A

    Now make a table and find out the difference between the two plans , here are the parameters

    1. Are you covered sufficiently ?
    2. What kind of return your are earning (IRR)
    3. What is the amount of money you will get at the end ?
    4. What will your family get it you go to heaven in next 3 yrs ?
    5. What will your family get if you go to heaven in next 15 yrs ?
    6. What will happen if you do not die , but due to some issue, you need your money in next 10 yrs.

    Come up with this and we discuss more !

    Manish

  2. ANKUR says:

    Dear Aman

    I agree with you that as a debt instrument LIC can be continued but we in our initial start of our careers either thru our “Uncles/aunties/friends” buy lic policies dime-a-dozen and then later on regret it,basically because the returns do not cope inflation and all the agents promises bite dust-i personally have 3 lic policies out of which 2 im going to surrender and keep 1 for all the 4 factors which you mentioned above.Cheers.

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