what should i do with my endowment lic policies? surrender or paid-up?

POSTED BY alpesh pancholi ON February 20, 2012 12:58 pm COMMENTS (11)

hi manish,
recently i read ur old article – ‘why one should not buy endowment policies?’ then i realised i did a mistake buying endowment policies under retirement plan. i have started the policies for me and my wife, 11.5 lacs and 5 lacs respectively in 2008, i have already paid 4 premiums. on 15-03-2012 is due for 5th premium.
policy details are as follows:
Policy name-start Date-Table & term-SA-Premium-Date of last payment-Date of maturity

Limited Pay whole life-15-03-2008-005-52-150000-4266-15-03-2032 –

Limited Pay whole life-15-03-2008-005-52-150000-4266-15-03-2032

Endowment with profit-15-03-2008-014-25-50000-2166-15-03-2032-15-03-2033

Endowment with profit-15-03-2008-014-26-50000-1941-15-03-2033-15-03-2034

Endowment with profit-15-03-2008-014-27-50000-1871-15-03-2034-15-03-2035

Endowment with profit-15-03-2008-014-28-50000-1806-15-03-2035-15-03-2036

Endowment with profit-15-03-2008-014-29-50000-1745-15-03-2036-15-03-2037

Endowment with profit-15-03-2008-014-30-50000-1689-15-03-2037-15-03-2038

Endowment with profit-15-03-2008-014-31-50000-1643-15-03-2038-15-03-2039

Endowment with profit-15-03-2008-014-32-50000-1600-15-03-2039-15-03-2040

Endowment with profit-15-03-2008-014-33-50000-1558-15-03-2040-15-03-2041

Endowment with profit-15-03-2008-014-34-50000-1522-15-03-2041-15-03-2042

Endowment with profit-15-03-2008-014-35-50000-1488-15-03-2042-15-03-2043

Endowment with profit-15-03-2008-014-36-50000-1456-15-03-2043-15-03-2044

Endowment with profit-15-03-2008-014-37-50000-1427-15-03-2044-15-03-2045

Endowment with profit-15-03-2008-014-38-50000-1401-15-03-2045-15-03-2046

Endowment with profit-15-03-2008-014-39-50000-1376-15-03-2046-15-03-2047

Endowment with profit-15-03-2008-014-40-50000-1355-15-03-2047-15-03-2048

Endowment with profit-15-03-2008-014-41-50000-1335-15-03-2048-15-03-2049

total-150000-35911

spouse

Limited pay whole life-14-03-2008-005-52-100000-2944-14-03-2032

Limited pay whole life-14-03-2008-005-52-100000-2944-14-03-2032

Endowment with profit-14-03-2008-014-42-50000-1316-14-03-2049-14-03-2050

Endowment with profit-14-03-2008-014-43-50000-1301-14-03-2050-14-03-2051

Endowment with profit-14-03-2008-014-44-50000-1287-14-03-2051-14-03-2052

Endowment with profit-14-03-2008-014-45-50000-1272-14-03-2052-14-03-2053

Endowment with profit-14-03-2008-014-46-50000-1260-14-03-2053-14-03-2054

Endowment with profit-14-03-2008-014-47-50000-1250-14-03-2054-14-03-2055

500000 13574

in 2009 i started jeevan saral for my wife of 5 lacs SA.

jeevan saral-24-11-2009-165-35-125000-3032-24-05-2044-24-11-2044-253650

jeevan saral-24-11-2009-165-35-125000-3032-24-05-2044-24-11-2044-253650

jeevan saral-24-11-2009-165-35-125000-3032-24-05-2044-24-11-2044-253650

jeevan saral-24-11-2009-165-35-125000-3032-24-05-2044-24-11-2044-253650

total -500000-12128(half yrly) 1014600

i have also sbi life – term insurance of 15 lacs for me.
my questions are:
1-what should i do with this policies?
2-should i surrender them or paid up?
3-for my spouse insurance is required? i m not financially dependent on her..she is teacher and i m a doctor having private practice.
4- should i draw this premium money in ppf or mf?
5- should i raise my cover by having another term policy? how much should it be?
please tell me i m very confused..the due date is coming…what to do?

11 replies on this article “what should i do with my endowment lic policies? surrender or paid-up?”

  1. Venkateswara Rao K says:

    Hi,

    Please ignore last premium paid date as I did not realise it while copying in excel. It was April 2013.

    Regards,

    venkat K

  2. Venkateswara Rao K says:

    Though, I knew that I fell into trap of agents by buying endowment assurance policy, I am unable to take decision. Agent is strongly pushing me to revive the policy by saying that bonus rates are superior for this policy than other policies.

    I am here with providing all the details of my policies which I got my agent.

    Policy Name S.A No. of Years Premium Amount Premium payment Mode Last Premium Paid Maturity Date No. of premiums paid Surrent value Bonus accumulated till 2013
    Endowment 43000 23 955 Half yearly Apr-13 2027 17 14884 18791
    Endowment 41000 24 872 Half yearly May-13 2028 17 12958 17918
    Endowment 40000 25 816 Half yearly Jun-13 2029 17 11575 17480
    Endowment 39000 26 765 Half yearly Jul-13 2030 17 10355 17043
    Endowment 38000 27 717 Half yearly Aug-13 2031 17 9284 16606
    Endowment 37000 28 674 Half yearly Sep-13 2032 17 8335 16169
    Endowment 36000 29 633 Half yearly Oct-13 2033 17 7501 15732
    Endowment 35000 30 596 Half yearly Nov-13 2034 17 6878 15295
    Endowment 34000 31 562 Half yearly Dec-13 2035 17 6371 14858
    Endowment 33000 32 531 Half yearly Jan-14 2036 17 5918 14421
    Endowment 33000 33 517 Half yearly Feb-14 2037 17 5673 14421
    Endowment 32000 34 490 Half yearly Mar-14 2038 17 5921 13984
    Endowment 32000 35 479 Half yearly Apr-14 2039 17 5098 13984
    Endowment 31000 36 453 Half yearly May-14 2040 17 4763 15035
    Endowment 31000 37 444 Half yearly Jun-14 2041 17 4609 13547
    Endowment 31000 38 435 Half yearly Jul-14 2042 17 4468 13547
    Endowment 31000 39 428 Half yearly Aug-14 2043 17 4347 13547
    Endowment 30000 40 407 Half yearly Sep-14 2044 17 4097 13110
    Endowment 31000 41 414 Half yearly Oct-14 2045 17 4063 13547
    Endowment 31000 42 408 Half yearly Nov-14 2046 17 3904 13547
    Endowment 31000 43 403 Half yearly Dec-14 2047 17 3758 13547
    Endowment 32000 44 410 Half yearly Jan-15 2048 17 3732 13984
    Endowment 32000 46 401 Half yearly Feb-15 2050 17 3475 13984
    Endowment 33000 47 411 Half yearly Mar-15 2051 17 3473 14421
    Endowment 33000 48 407 Half yearly Apr-15 2052 17 3359 14421
    Endowment 33000 45 419 Half yearly May-15 2049 17 3717 14421
    Whole life 200000 53 2934 Half yearly Jun-15 2057 17 29495 126400

    I am seeking the experts help in this regard.

    Thanks & Regards,

    Venkat K

  3. Gaurav Patel says:

    Hello friends..This site is an eye opener for me..got an entire chart from my LIC agent and now here are my queries .. (I am 27 years old)
    policy details are as follows:

    Policy name – start Date – yearly Premium – total premium paid till date – surrender value – Date of last payment – Date of maturity

    New jeevan shree – dec 2002 – 31900Rs – 319000Rs – 210410Rs – dec 2018 – dec 2027(only this policy has different date of last payment n maturity)

    Jeevan Anand – feb 2005 – 10221rs – 81768rs – 51143rs – feb 2030
    Jeevan Anand – oct 2009 – 4834 – 14502 – 3596 – oct 2032
    Jeevan Anand – oct 2009 – 4374 – 13122 – 2939 – oct 2034
    Jeevan Anand – oct 2009 – 4010 – 12030 – 2430 – oct 2036
    Jeevan Anand – oct 2009 – 3728 – 11184 – 2030 – oct 2038
    Jeevan Anand – oct 2009 – 3428 – 10284 – 1716 – oct 2040

    Ltd pay w.life profits – june 2005 – 5542 – 41565 – 16628 – june 2064

    Endowment with profits – june 2005 – 3066 – 22995rs – 13737rs – june 2029
    Endowment with profits – june 2005 – 2810 – 21075 – 11568 – june 2031
    Endowment with profits – june 2005 – 2592 – 19440 – 10372 – june 2033
    Endowment with profits – june 2005 – 2404 – 18030 – 9387 – june 2035
    Endowment with profits – june 2005 – 2256 – 16920 – 8587 – june 2037
    Endowment with profits – june 2005 – 2128 – 15960 – 7919 – june 2039
    Endowment with profits – june 2005 – 2016 – 15120 – 7360 – june 2041
    Endowment with profits – june 2005 – 1918 – 14385 – 6896 – june 2043

    these are just my policy..similiarly my dad has invested for my brother as well..my dad buys policy on trust..he mst have never seen a single document ..n i always never paid attention, which i should have..but better late than never..so please guys suggest me what should i do in this situation.. thanks in advance ..(you guys are doing an awesome job)

    1. Ramesh says:

      Trusting others without due diligence is a hazardous activity.

      I agree with the analysis of Justgrowmymoney, which has been detailed above.

      1. First learn the basics. Go through the various threads and try to understand why someone has said that. Read a few books, which you will also find through the threads.

      2. Make a plan for yourself of what you will do with the money in the present and future.

      3. Then surrender all these stupid policies, in case that really fits in your analysis and plan. And NOT because someone else has said that.

      Keep learning and investing.

      Ramesh

  4. Seems like some agent sold it by saying “specially designed for you” which will mature each year and form a pension . Thats a trick taught to agent in their seminars ! (paid one)

  5. Dear alpesh, for your own policies, total prem. paid till date by you is 35911 * 4 = 143644

    Your possible surrender amount ‘ll be around = 32-35K. It’s almost a loss of 1.1L Rs. A big one But it’s the small price you w’d pay to save a higher future price.

    Similarly your may calculate for your spouse’s policies.

    Please surrender these policies now & invest the surrender amount in a simple product like PPF.

    Please purchase a term cover of at least 10-12 times of your yly income & similarly 8-10 times of your wife’s income for her.

    Thanks

    Ashal

  6. BanyanFA says:

    A very good analysis by Justgrowmymoney.

    I agree with his feedback. Just need to consider that are you ready to take a hit of the difference between the premiums paid and the current surrender value of the policy.
    Please consider the tax impact as well if the policies are within the 3-5 years duration from the date you took tax rebate under 80C (if you took the rebate).

    Any recent policy (within past 1-3 years) can be discontinued – it is prudent to take a hit now then throughout the life of the policy. For policies which have continued for some time (over 5 years), you may wish to continue with such policies and consider it as a very low risk investment. Any further investment can be 100% equity mutual funds to compensate for the policies.

    Regards
    BFA

  7. After careful analysis I recommend ALL these plans need to be discontinued. Just surrender them and un complicate life and get whatever payout is available. Now this may seem to be painful. You have paid premiums for close to 4 years and may lose significant amount. But the justification is this:

    You have 3 options overall:
    1) Continue with the plan – ABSOLUTE NO-NO
    2) Get a Payout of whatever surrender value is available today
    3) Make the policy a paid-up one. Life insurance will continue for an amount significantly less than the overall 16.5 lacs for next 21-28 years or so.

    I have done some approximations here. I considered all policies to be of the same breed. The Annual premium is usually 5% of Sum Assured. SO I added up the SUm Assured and arrived at the annual premium to be 82,500 per year.

    If you make the policies paid-up the coverage will decrease + it will fall even more as each policy matures. You will get the maturity payouts from 2033 or so. For calculation purposes I assume you get every single payout from all policies in 2033 itself.

    I assume you will get at least 30% of the premiums paid to date (minus the first years premium) if you surrender the plan right away.

    If you make the plan as paid up you will not get future bonuses. All accrued amount today will be paid but after 17 years with a nominal growth if at all.

    The attached spreadsheet shows the Net Present value of cash flow received today versus received after 21 years. I assume the surrender payout of 74,250 is invested at 10.4% return over the next 21 years (=(60%*12%)+(40%*8%), 60% MF@ 12% return and 40% Debt/PPF/EPF@ 8% return = Weighted Avg. return of 10.4%).

    Also I discount the paid up payout of 4.5 lacs at 10.4% for 21 years which gives a TODAY’s value of ~ 56,705 ===> The surrender option is superior in overall return and is recommended.

    That covers your first 2 questions.

    Does your wife need Life Insurance:
    Incidentally there is a detailed discussion on this only yesterday
    http://localhost/jagoforum2/does-my-wife-need-life-insurance/2835/

    You must go with a combo of PPF and MF at a 40% 60% allocation.

    You MUST have a Term Insurance coverage for about 7-10 times your annual income + Also cover all liabilities (like Home Loan etc.) you may have.

    Feel free to revert for clarification needed if any.
    [file]http://localhost/jagoforum2/readers-files/ShouldIsurrenderanEndowmentPlan.xlsx[/file]

    1. alpesh pancholi says:

      @justgrowmymoney and @ banyanFA
      thanx for ur valuable feedback.

      i want to clarify to justgrowmymoney that…carefully see that i have to pay premiums up to 2054….
      i have seen ur attached spreadsheet…i could not understand the table..will u please make me understand that?

      1. Alpesh – The value of Rs. 100 received today is Rs. 100. Assuming 10% inflation next year the value of the same currency is Rs.90 only ==> On 20 Feb 2013 (next year) that hundred rupee note can only buy as much as Rs.90 buys on 20 Feb 2012 (today). So the Net Present Value of 100 received next year is only worth 90 as on today. It means there is no difference between me paying you 100 today or 90 next year. The value is the same.

        Thus you can choose to have a payout today by surrendering all policies. Or you will receive payouts from 2033 onwards for 20 years. I clubbed all such future payments as if they are being received in 2033 itself (instead of going until 2054). This is what the table is.

        You can extend this table until 2054 and fill the exact payout each year and do a NPV that way as well. The longer you keep the money invested in low paying endowment plans the lower the Net Present Value is. Mine was an optimistic calculation. If payments are spread over 21 years from 2033 the NPV will be way lower.

        1. alpesh pancholi says:

          thanx justgrowmymoney, i understood.

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