POSTED BY March 24, 2012 9:22 pm COMMENTS (6)
ONA year ago, in 2011, I took a Jeevan Shri Policy to save tax. However after some analysis It seems to be a wrong decision as returns and life cover are not adequate.
Details are as follows:
Plan & Term : 162-10-6
Annual Premium : 84574
Premium paying years: 2011 – 2016 [6 premiums total, 1 premium of 2011 paid]
Maturity : 2021
Returns from LIC in 2021 : 725000.
Please advice me if I should stop paying premiums or continue.
Thanks.
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Dear Hemant, if you opt to surrender now, you are going to lose all your money paid as first prem. are you ready for it?
Thanks
Ashal
Thanks for the reply, can you please suggest what are the options other than surrender so that I dont loose the investment. I have heard of something called making a policy paid -up. Would that apply here?
Dear Hemant, please contact local LIC office for the same.
Thanks
Ashal
Hi Hemant,
You’ve decided that this is a bad policy for you. Let’s start from that point.
The premium to be paid by you is 84575 per annum which works out to 7047 pm
Let’s assume that you invest 7044 pm in a decent mutual fund (Any mutual fund for our illustration). At ROI of 12.5% (conservative estimate), at the end of 2016, your corpus would be 579,000
Now, assuming you put this into a debt fund which is very safe and gives you a return of 7.7% over a 5 year period (I”ve used UTI Bond fund (G) for calculation purpose), your final corpus at 2021 would be 838,991 which is 1 lac more than what you would get. Even assuming 30% tax bracket and that you would have to pay around 25,000 in tax for whatever tax investment you saved, you still end up gaining around 75,000 in 2021 (assuming very modest returns)
Also understand that at end of 2016 you would have 579,000 for use to invest wherever you want or spend per your situation at that time. I’ll let the numbers make your decision for you 🙂
Hi rmohan,
Have you considered the cost of insurance in your calculation?
Hi Indian_Engineer:
That’s a good point; I never considered the cost of the premium, but if the person wants to discontinue since it’s a bad investment, I’m assuming they’re ok with the loss of it
Ram