Life Insurance: Surrendering policy? Think again

Many are stuck with wrong life insurance plans. Financial planners often advice you to surrender the policy and use the money for better investments. Raj Pradhan finds that is wrong advice in most situations. Find out when and how you should surrender life policies

Many people are unhappy with their life insurance choices. They want to get out of the policy and even whine about having been mis-sold a product. What should they be doing? Open a newspaper, a magazine or watch business channels and you will find many so-called experts casually advising people to surrender their dud insurance policies. Some may suggest that you turn your policy into a ‘paid-up’ one without even explaining its implications. Exhorting readers or viewers to bite the bullet by ending your insurance policy and showing dreams of investing in better instruments is common. But is it sound advice? Do you really know what surrender value you would get for your policy? Also, after taking a beating on your policy, do you know how much the new option would have to generate to really be a better choice? If not, don’t listen to the babble of the experts. Talk is cheap. Following them blindly will surely lead you to disaster.

If you have already invested in a traditional policy or a unit-linked insurance plan (ULIP) and are unhappy, think hard before surrendering it. After all, it’s your hard-earned money. Moneylife gets several such queries from readers and, in most cases, they are tempted to surrender the policy because something else appears to be more attractive—equities, real estate or gold/silver—depending on which has run up. You have better options, as this article will explain. For starters, if you have an insurance policy for ‘cum-investment’ purpose, why not benefit from rupee-cost averaging, disciplined investment and long-term savings? After all, these products have already squeezed the high charges from you in the initial years and surrendering will only benefit the insurance company. Moreover, what happens to the tax benefit you have taken under Section 80C when you surrender the policy? Is the surrender amount taxable? Read on.

How did you get stuck with a traditional insurance policy or ULIP in the first place? Listening to experts or biased media? Moneylife had done a product review of Kotak Invest Maxima ULIP (12 January 2012). We wrote: “Zero premium allocation charge but hefty policy admin charge.” Recently, we came across a review of the same product in another magazine. Its view: “One of few products in the market with zero premium allocation charge.” The product has 7.2%pa policy admin charge, which is killing. The company is extracting your money one way or the other. In another article, the actuary of Kotak Life Insurance admitted that removal of the premium allocation charges amounts to ‘repackaging’.

Here are examples of the kind of advice offered by experts for surrendering your insurance policy and what we think would be the right approach.

Traditional products offer low insurance: While this is true, what happens to your investment component when you surrender? It takes a beating. Why not compensate for low insurance by buying a term plan without giving up the existing traditional policy?

Traditional products offer low returns: It is true in many cases, but long-term (over 16 years) endowment policies from LIC (Life Insurance Corporation of India) have given decent returns on investment—7%-8% tax-free. If you have to exit and get a pittance as surrender value, your new investment has to offer such high returns that it compensates for the loss you incurred with the traditional policy. Can you put down the actual numbers on paper to prove this? Generic advice of surrendering may not benefit your particular investment situation.

Traditional products give special surrender value: While this is true for many traditional products, it is not guaranteed. It depends on the insurer. The guaranteed surrender value (GSV) is low which entails losses for you. Moreover, you have to find out what the special surrender value (SSV) really amounts to in your policy. This may depend on how many years your policy has been active, the policy term, the product, the company’s performance and so on.

Surrender traditional products early or hold them if the term is almost over: For starters, surrendering within three years of a policy will give you nothing. After three years, you get 30% of the premium paid minus first-year premium plus partial bonus. Hoping to make it up with a big gain in a new investment is impossible in most cases. Moreover, traditional products are not like fixed deposits (FDs) where breaking it makes sense early in the term. There are options like negotiating with the insurance company to reduce the policy term, in case you want to get rid of the policy sooner. It does work in many cases, if you just ask.

Traditional products have high charges: This is a fact, but once you have bought a policy, you have already gone past the high charges since the charges are front-loaded. Surrendering it will only help the insurance company, not you. If you are facing a financial crisis, partial withdrawal or loan is an option.

Convert your traditional policy to ‘paid-up’ if in the middle of policy term: Have you found out what will be the paid-up value that will be given at policy maturity or death? Considering the amount of premium paid till now, how much is your rate of return? You need to see the numbers before converting the policy to paid-up.

ULIP has exposure to equities and the market is volatile: This was the advice given on a TV business channel which may have left many flabbergasted. How about switching to a debt funds option? Experts are dime a dozen; what do they have to lose with free advice on TV? Nothing.

Poor fund performance of ULIP: It is possible that markets are doing much better than your ULIP’s performance. What do you do if the fund management is poor? Depending on the number of years in the policy, you may have minimal or no surrender charge. If so, you can discontinue the policy. If the policy surrender charge is high, you can decide whether you want to shift to a debt fund option and hope the fund is better managed. You can make new investments in equity mutual funds to balance your total investment.

ULIP does not offer capital guarantee: The equity option will not guarantee capital; it is for the long-term investor with some risk appetite. The debt option of ULIP too will not guarantee capital, but it is unlikely you will have any loss if you remain in the policy over a period. Capital guarantee is offered by traditional products but you will be jumping from the frying pan into the fire.

Old ULIP surrender: A well-known financial planning website advised a Moneylife reader to surrender an old ULIP even though the required three premiums were not paid. They ignored the fact that surrender of an old ULIP within the lock-in period may yield next to nothing.

Use ‘cover continuance’ feature of ULIP: The new ULIPs don’t offer this feature. If you stop paying premiums after the lock-in period, the policy will be discontinued and funds returned to you. The ‘cover continuance’ feature was available in old ULIPs wherein you could stop paying after three premiums and continue with the policy. The funds would remain invested in your choice of fund option. The mortality charges will be deducted to maintain the insurance component. It was a great feature, but was done away with in the new ULIPs.


This was due to mis-selling by intermediaries. Using cover continuance also means you are not a long-term, disciplined investor interested in rupee-cost averaging of your investment.

Better product in the market: This is the pitch from intermediaries to churn your portfolio. They egg you on to surrender your policy and to put the proceeds in a new product even if it is not in your interest. Traditional products are front-loaded—the intermediaries get instant gratification from the first year’s commission of the new product. It is a completely wrong advice to boost the agent’s revenue.

Go for term life insurance: It is true that term life insurance is the best insurance you can buy, but is it worth surrendering your policies to buy term life? A Moneylife reader has 22 LIC policies in his family. The total insurance component is still lower than the necessary risk cover for his family. He realises the importance of term life and is now tempted to surrender all his LIC policies and go for term life insurance. Is it really worth the losses, considering that today online term insurance comes at incredibly low premiums?

If the policy doesn’t meet your objective, it is better to let it lapse even though you stand to lose the premium: This is the advice from an expert in a leading newspaper. It sounds sophisticated like ‘people should buy bonds instead of investing in FDs’. What objectives do people really have? They want decent insurance and investment instruments to grow their savings. It’s true that some people may have short-term needs, but why did they invest in traditional insurance, which is a long-term product? Most of these products, especially endowment plans, have a loan feature wherein 90% of the surrender value can be taken as loan @9%pa (the current LIC rate) instead of surrendering the policy.
Private insurers may charge a higher rate of interest on the loan. Kotak Life is charging between 12%-12.5%pa.   

According to Girish Malik, vice-president-life insurance, Nandi Insurance Broking and Risk Management Services Pvt Ltd, “Taking a loan against an insurance policy is sometimes a deliberate strategy of businessmen. LIC’s Bima Bachat is a single premium endowment plan with 80C tax savings as an incentive. After taking the tax benefit, businessmen take loan on 63% of the investment @9%, which is a great feature. The GSV is available only after completion of at least one policy year. After completion of one year, you can take loan on 81% of the investment.”

Stay Married or Divorce?
You have to evaluate your situation to figure out if you need to stay married to your insurance policy or take a divorce. Work out your returns. What is really your specific situation? What is the surrender value your policy is offering? What is the expected rate of return from your existing policy? Does your existing policy offer a loan? How much is the revival period in case you skip premium payment? How many premiums are paid and how many remain? Does it offer a ‘paid-up’ feature? What is your alternative investment plan? What kind of returns will it give? What are the ratings of new investment and, hence, risks associated with it? Are those assured returns or expected returns? If you give up on your existing insurance policy, you will need some insurance to cover your risk. What would that be?

 

There are other issues as well. Are you short of funds for investment for getting the 80C rebate? Are you heavily in equity investment and need debt exposure to balance? Do you have an investment option which would fetch you the returns to compensate for the loss due to surrender? What is your tax bracket? Is the existing premium miniscule or hefty?

Traditional Plans: Bad Partner, Worse in Divorce
Intermediaries get 30%-40% commission in the first year of selling a traditional plan. The unwritten understanding is that they share a good part of what they pocket with the client. That should not be an incentive to buy a traditional plan, but it shows why insurance companies cannot give a decent surrender value on a traditional plan during the initial years of the policy. On the other hand, this is exactly the reason why intermediaries are willing to share the commission. They know you are stuck with the policy.

The persistency ratio of insurance policies after two years is hardly 60%, i.e., in two years, the premium on 40% policies remain unpaid. In case you are unable to pay premium due to any financial constraint, traditional plans allow revival of policy usually within five years of first unpaid premium by paying arrears of premium together with the interest and possibly a medical test. The revival period for some traditional plans may be between two and five years.

According to Shrigopal Jhunjhunwala, a veteran LIC agent, “Many LIC plans allow decrease in policy term. A policy term of 25 years may be reduced to 17 years by paying premium difference along with interest. If the policyholder does not want to pay differential premium, the SA will be appropriately reduced.” Some private insurance companies do not allow reduction of policy term. The argument is that there is not much demand for such a feature. Why can’t the policy term be extended? This is because the underwriting was done based on the circumstances prevailing at the time of policy issuance.

Let us take the example of an actual policy and see whether the customer benefits by surrendering. LIC’s endowment plan is a decent traditional plan especially if you take a view of 25 years or more. In this example, we assume policy term of 17 years and that a couple of premiums have been paid. If the customer is now contemplating surrender of the policy and foregoing the couple of premiums and starting a fresh investment in PPF (Public Provident Fund) currently offering 8.6%pa returns, is it a right decision?

Look at the risk factor in your plan to be able to compare the two investments. Surrendering your LIC endowment in the example to invest in PPF @8.6%pa does not make sense for a policyholder who is 25 (needs tax-free 8.62%) and is positively illogical for a policyholder aged 42 (needs tax-free 8.53%). Moreover, you can only put maximum of Rs1 lakh per year in PPF and if you already have funds available for it, does it make sense to surrender a traditional policy? Buying a bank FD at 9%pa will not be an option as the post-tax returns will be only 6.3% (assuming you are in the 30% tax bracket).

This is why you have to think twice before surrendering your traditional insurance policy. According to Girish Malik, “If you are stuck with a toxic traditional product which does not give returns in line with other traditional products in the market, you may have to look for exit. Turning your policy into paid-up will make more sense than just surrendering which only helps the insurance company. If you are bent on surrendering the policy, you need to get a quote for surrender value of the insurance policy before actually giving a go-ahead for surrender.”

If you are close to the end of policy term, do whatever it takes to complete the policy term. Many traditional products offer final additional bonus (FAB) as an incentive to stay with the policy. You can also take a loan from your PPF account to pay the premium of insurance policy to help in completing the policy term. There may be instances where you need funds due to some financial constraint or say investing in PPF for 80C tax savings. Most traditional products offer a loan feature wherein  90% of surrender value can be taken as loan. In these cases, you can take a loan to put money in PPF.
 

How much is the actual GSV?
This will vary with traditional products and insurance companies. In general, if you don’t pay three premiums, you will not get anything back. There are certain exceptions like LIC Shree Policy which will give you the surrender value even after one policy payment. This is an exception and being able to return surrender value at any time also means that the insurance company makes up money somewhere, i.e., higher premium.

As per the Insurance Act 1938, after three premium payments, the GSV works out to 30% of the premiums paid minus first year premium. While the policy document may not talk about partial bonus payment during the time of surrender, possibly because the insurer wants to discourage surrender, internal LIC circulars do mention it for many traditional plans. LIC should publicise it instead of keeping it covert. It is called cash value of any existing vested simple reversionary bonus. This is something the media never talks about probably because it is unaware of it.

According to LIC sources, “Customers do not realise that cash value of bonus (partial bonus) is added in the GSV. It is also considered while coming up with special surrender value (SSV) which is offered in many plans. The customer gets the higher of SSV or GSV. Moreover, the longer you stay with the policy, the higher is the amount of partial bonus added. It means your GSV as well as SSV will start looking better when you stay for a longer period with the policy.”

For example, if a policyholder takes LIC’s endowment plan in January 2009 for 20 years with SA of Rs1 lakh, the premium will be Rs4,881pa. After four premium payments, the policyholder would have paid premium of Rs19,524. In this example, the GSV is Rs7,910, even though, going by the actual policy wording the GSV is only Rs4,392. What explains the difference between Rs7,910 and Rs4,392? It is the cash value of existing vested bonus (partial bonus). The SSV offered by LIC is Rs9,099. Do you still want to take a 50% cut in your investment even after taking SSV and expect to make big profits in new investments?

According to Vijay Sinha, senior vice president and head, marketing of Tata AIG Life Insurance, “The surrender value (referred to as cash surrender value or SSV) is calculated on the basis of paid-up value and accrued bonuses multiplied by the applicable surrender value factor as per plan/product. The longer the customer stays invested in the policy, the greater is the surrender value factor which results in better SSV.”

What are the tax implications of policy surrender?
Tax savings on entry: If you do not pay any additional premium after buying a regular premium policy, not only do you not get any surrender value, you will also have to reverse the Section 80C tax savings you have taken. The amount of deduction allowed under Section 80C in earlier years shall be deemed to be income of the customer and liable to tax in the year of surrender of policy. It will be a double whammy for you. According to 80C rules, tax savings will have to be reversed if you do not keep single premium policy in force for two years after the date of commencement of the policy or regular premium policy premiums are not paid for two years.

Tax savings on exit: On receipt of surrender or paid-up value, you will not have to pay taxes. This is similar to tax treatment of policy on maturity or death of policyholder. As per the existing rule, exemption of taxes on corpus is allowed as long as insurance component of the policy is five times the premium.

Traditional Paid-up: Neither Married nor Divorced
According to Vijay Sinha, “One should only convert one’s traditional life insurance plan into a paid-up one, if one has strong reasons to believe that the originally purchased product is a mismatch for him. The important point is that when the policy is converted to paid-up, your SA has been effectively reduced. It means you have reduced your life insurance protection and you will have to compensate it by buying another life insurance policy. One needs to remember that with increase in age, the risk premium increases and one will have to pay more for the same cover as time passes. Hence paid-up or policy surrender are to be done only as a last resort.”

Many traditional products offer paid-up option in case you want to remain invested after paying three premiums, but do not want to pay future premiums. The paid-up value bears the same ratio to the full SA as the number of premiums actually paid bear to the total number of premiums originally stipulated in the policy. It means that if you pay premium for five years when the policy term is 10 years, the paid-up value is half of the original SA.

The policy so reduced is free from future premium payment, but is not entitled to the future bonuses. The FAB given at the end of the policy term will not be given for paid-up policies. The existing vested reversionary bonuses, if any, remain attached to a paid-up policy. This paid-up value along with the vested reversionary bonuses are payable to the policyholder at the end of the policy term or on death, whichever is earlier. Accident benefit and critical illness riders do not acquire any paid-up value.

Does it  really help to turn your policy into paid-up? For example, in the case of LIC’s endowment policy, a policyholder of age 25 years with a policy term of 10 years pays a premium of Rs1,03,032 for sum assured of Rs10 lakh. If the policyholder converts the policy to paid-up after paying five premiums, he would have paid Rs5,15,160. The paid-up value will be half the SA, which is Rs5 lakh. The paid-up value along with bonus declared till converting the policy to paid-up will be paid on death or end of policy term. The total bonus based on current bonus rate (of Rs34 per thousand of SA) is Rs1,70,000. The total paid on death or after completing the policy term of 10 years is Rs6,70,000. The bonus amount will depend on the actual declared rate. The return on premium at the end of 10 years is 3.33%. If you had continued premium payment till the end of policy term, the return on premium would have been 4.73%. Paid-up policy is not the best solution, but better than policy surrender which will amount to financial hara-kiri.

According to Shrigopal Jhunjhunwala, “Why do customers prefer single premium or limited premium payment term of three to five years? This is due to uncertainties in life and especially customers with high-ticket premium are not sure of their capacity to pay premiums regularly over a period of time. People are looking for a back-up plan in case they miss on paying a premium. Most of the LIC’s traditional products do offer the flexibility of revival within five years of first unpaid premium. SSV, turning policy into paid-up, reducing policy term and so on are some of the exit options. A policy can be split into multiple parts (subject to conditions) and you can continue to pay premium for one or more parts and wait for your financial conditions to improve so that you can revive the remaining policy parts. There are options like loan-cum-revival of policy wherein you can avail of loan to help revive your policy by paying arrears.” Every traditional product from LIC and private insurance companies is different. Features offering flexibility of exiting the policy will differ.

Soured Marriage for Old ULIPs
Surrender Charges: Insurance companies had a dream run in mid-2000 with huge revenues from ULIPs surrendered within the three-year lock-in period. Many of these products had hefty surrender charges if you surrendered within the lock-in period. For example, Bajaj Allianz New UnitGain ULIP had surrender charge of first year’s allocated premium, if the regular premium of first three years was unpaid.

Some of them, like ICICI Pru LifeTime Super Pension, gave 96% of the fund value after completion of three years, 98% after four years and 100% after five years. At the other extreme, there are a few old ULIPs, which penalise you almost till the end of policy term. They literally want to squeeze you till end of the policy term. Check what surrender value your policy offers and judge whether it is worth surrendering.

One Moneylife reader had completed three years of premium payment for Bajaj Allianz New UnitGain ULIP and wanted to surrender. He was deterred by surrender charge formula. [1 - (1/1.06)^N ] * first years’ annualised premium (where N is 10 years, less the elapsed policy duration in years and a fraction thereof). The policyholder finally decided to keep the policy for 10 years as there is no surrender charge after 10 years. The insurance regulator found another Bajaj Allianz ULIP (Capital Unit Gain) complicated and not customer-friendly. It asked the insurer to withdraw the product.

Policy Revival:  Because old ULIPs paid next to nothing if you surrendered without paying three premiums, these policies are allowed to be revived within two years of non-payment of premium. You may need to undergo a medical test.
Cover Continuance: This is similar to the paid-up concept in a traditional plan, but not exactly the same. It was an excellent feature available in old ULIPs, but was a double-edged sword as it was used for mis-selling—telling customers only to pay for three years. With the charges front-loaded, it makes sense to continue with the policy beyond the mandatory three years to get the benefits of long-term investment and rupee-cost averaging.

Cover continuance does not reduce your sum assured for death benefit, unlike the paid-up concept which proportionately reduces sum assured depending on the number of premiums you paid and the policy term. If you are not satisfied with your old ULIP, you can have a separation without divorcing the policy with cover continuance feature. Under this, if one is not able to pay the premiums any time after the first three years (lock-in period), the policy would not lapse and the life cover continues. The funds invested in equity/debt will continue to remain invested in the policy. The life cover sustains because of the mortality charges that continue to be deducted from your fund value along with other charges as per the policy contract. It ensures that the sum assured is payable in the event of the policyholder’s demise, even if all the premiums have not been paid.

New ULIPs Are Easier To Divorce
Surrender Charges: In new ULIPs, there are no surrender charges after five years. If the policy is surrendered before the lock-in of five years, the surrender charge will depend on the year of surrender as well as premium amount. In the worst-case scenario, if you surrender after paying only one premium, the maximum surrender charge as per IRDA will be Rs3,000 (premium up to Rs25,000) or Rs6,000 (premium above Rs25,000). Some insurers may charge less. LIC Endowment plus (new ULIP) has surrender charge of Rs2,500 (premium up to Rs25,000) and Rs6000 (premium above Rs25,000). The surrendered amount will be returned only after completion of five years of policy, but you will get 4%pa interest.

Policy Revival: The policy wording of LIC Endowment Plus gives details of policy revival which is similar to what other new ULIPs will offer. It says if you fail to pay premiums under the policy within the grace period, a notice shall be sent to you within a period of 15 days from the date of expiry of grace period to exercise one of these options within a period of 30 days: a) revival of the policy, or b) complete withdrawal from the policy. If you do not exercise any option within the stipulated period of 30 days, you will be deemed to have exercised the option of complete withdrawal from the policy. In short, unlike old ULIPs, you do not have the luxury of two years to revive the new ULIP.

Cover Continuance:  New ULIPs don’t offer cover continuance. Premium discontinuance after completion of the fifth year (the new lock-in period) will give the policyholder the option to revive a policy within the eligible period. The other option is a complete withdrawal without any risk cover; you  will get fund value. Unlike the old ULIPs, where you can stop premium payment after three years and get cover continuance to keep insurance protection and keep the funds invested, the new ULIPs offer poor options if you stop premium payment after five years.

Is the premium payment term (PPT) in new ULIPs similar to cover continuance? The difference is that in the case of new ULIPs that are offering PPT you will have to declare upfront how many years you wish to pay the premium for. The insurer will accept payment only up to the declared PPT, but allow the policy to remain in force till the end of the policy term—as long as premiums till the end of the PPT are paid. The flexibility of cover continuance is offered with PPT in new ULIPs, but the onus is on you to make an informed decision that cannot be changed later. The option to discontinue the policy without any penalty anytime after five years is available for all new ULIPs.

The Clock Is Ticking
Go through the policy document in detail and understand the fine print. If you are unhappy with anything, cancel the policy within the free-look period. The clock starts ticking from the moment you buy life insurance. You will receive your premium net of charges for stamp duty, medical tests (if applicable) and proportionate risk premium charge to cover you for the time until cancellation.

If you have missed the free-look period, complete three premium payments to ensure that you don’t lose everything in traditional plans and in many old ULIPs. New ULIPs carry a cap on surrender charges and you will get your discontinued fund along with 4% interest after five years. After completion of three years, a traditional plan acquires paid-up value and old ULIPs offer cover continuance.

Remember, a traditional plan offers two to five years for policy revival in case you miss premium payment and old ULIP offers two years for the same. Taking a loan against 90% of a traditional policy’s surrender value and reduction of policy term are good options, if you need the money. ULIPs may not offer high loan value, but its flexibility beats a traditional policy. Use the switch option from equity to debt, if you are conservative.

If you have already purchased a non-toxic traditional or ULIP, stay with it; you will benefit from disciplined savings and rupee-cost averaging. If you are looking for pure risk protection, term life insurance is the best option. It does not offer any maturity or surrender benefit and, hence, there is no question of being stuck with the policy. Make the right choice before buying life insurance. The clock is ticking. Insuring one’s life is not optional.


Moneylife Survey: 37% Feel Stuck with Their Policies
 

But they have not explored options other than surrender—the reason for this article
 

Our survey on surrender of life insurance policy indicates that readers are savvy about wanting sufficient term life insurance, but alas they are stuck with a traditional policy or ULIP. Online term plans are inexpensive and, hence, you don’t need to surrender a traditional policy or ULIP to be able to complete your insurance needs. Moneylife’s online survey received responses from 617 readers. Almost 80% of the respondents are paying premiums towards traditional policies while 50% pay for ULIPs. It is in line with the penetration of insurance-cum-savings products which are popular with Indians. The trend of buying a term plan, which will give nothing if you survive, is slowly but surely catching on as awareness of risk protection increases.

Two out of three respondents were aware of policy revival rules in case of missed premium payment. It is surprising that almost one in four does not know about the switch option in ULIPs—to move funds from equity to debt option and vice-versa. Some 37% of the respondents feel they are stuck with life insurance policy and want an exit. This should not happen if a life insurance product is purchased with the right intention of disciplined savings and awareness of returns a product can yield. Unfortunately, the grass is always greener on the other side and the urge to exit can be wrong but overwhelming.

The top three reasons for traditional policy surrender are: low bonus or benefits, wanting to get proper insurance through term life and better investment options. Online term life insurance is affordable; hence, do you really need to surrender your policy? The top three reasons for ULIP surrender are: poor fund performance, high charges and wrong selling by agents. Old ULIPs were front-loaded with charges. The new ULIPs spread the charges over the years. In effect, the total charge over five years or more is almost the same and does not really reduce. Mis-selling by agents with big promises was prevalent in old ULIPs and we hope it has reduced with customer awareness and reduced upfront incentives for agent to push ULIPs. Well, agents can push traditional products to generate high commission and they surely do it.

Almost 30% of respondents have already surrendered life insurance policy and, of those who surrendered, 28% did not analyse alternate investment options. It shows that surrender decision is often whimsical and without any sound logic. As much as 57% of the respondents are aware of the surrender value of a traditional policy while almost 50% are aware of surrender charges of old/new ULIPs, which is encouraging. Of those for whom policy surrender was applicable, more than 50% had not considered the paid-up option for traditional policies, cover continuance for old ULIPs as well as the loan feature for their immediate financial needs. This is not surprising as life insurance policyholders are unaware of the options they have. Our Cover Story will help these investors.

 

 

Comments
Ravi
10 years ago
Very informative article. I also went through all comments and replies. All this makes one more wiser while reading through.
I just surrendered an endowment plan with sum assured two lakh with premium of 6800. It is 9 year old plan from Kotak Life. I realized that the sum insured was too less and the returns were not reasonable. It is far below 6%. Now I will put the money in some MF with average 12% yield (reasonable expectation) for next 16 years. I will continue to invest a sum equivalent to the annual premium year after year for next 16 years in MF and to my calculations it will yield almost 4 times more than what Kotak assured me for 25 years plan. I didn't go for paid up option because the annuity will be still less than what I would get in MFs.

Am I right or wrong? I think I am not because I would buy a term plan with the additional returns I get from my MF investment which will give me higher insurance.

Now I also have an ULIP of 5 year old and after talking to the company and reading this article I will continue it. I realized that I have already paid huge sum in advance so there is no point in surrendering the policy. Rather I will take the services for what I paid. As long as markets perform they will yield results.

Thank you for such a good article and hot comments.
Yogesh
1 decade ago
I have query:
I was missold a ULIP policy Smart perfomer from SBI life.It has a annual premium of 100000/-.
for 10 years, with 1000000/- of cover, I already have term insurance of 50 lacs from Lic.
I am thniking to surrender this policy ,
please advise !
Dr Sajit
1 decade ago
My wife has been regularly paying an annual premium of Rs 23,968 towards a "LIC Endowment assurance with profit" policy she bought in 2004 for a sum assured of Rs 5 Lac and a policy term of 20yrs.
I found out the surrender value of the policy was 1.5 lakhs while the paid-up value was 3.5 lakhs with a total accrued bonus of 1.5 lakhs.
Should she surrender this policy Or should she continue with policy?
Many thanks in advance in anticipation of an early reply.
Warm regards
Dr Sajit
Deepak R khemani
Replied to Dr Sajit comment 1 decade ago
Dr Sajitji,
The info you have provided is not enough,A lot of data is needed for someone else do decide this matter for you, do you want life cover on her life to continue, are you ready to bear the loss if you surrender it? If you convert it to paid up when will you receive the money after 15 year, is it Ok with you, only then you should decide to surrender it or make it paid up or continue with it.
Dr Sajit
Replied to Deepak R khemani comment 1 decade ago
Deepak,
We anyway intend to take a term cover as we feel the existing life cover is grossly inadequate. Since the policy tenure is 20 year we will receive the paid up after 12 yrs, having paid 8 installments.
Our concerns
a.Are the current returns on the endowment policy good enough to considering continuing?
b.It is obvious that we wd take a loss if we either surrender it or make it paid-up. However would i stand to gain continuing with the policy?
Deepak R Khemani
Replied to Dr Sajit comment 1 decade ago
Please take the term policy FIRST and then surrender this policy, Any endowment policy will give you around 7% TAX FREE IRR over a period of 20 years, also do not forget TERM is not the only solution, there has to be an investment going along with the TERM Policy like PPF or equity MF or Gold or Fixed Income or a combo of all these, anything you are comfortable with and which fits your Risk profile which will accumulate a corpus for your wife in case she outlives the term of the TERM POLICY.
I hope I have answered you question Dr Sajit
prakash praharaj
1 decade ago
Raj,
I have got a case in which 3 ULIP with total annual premium of Rs 4 lakhs was taken in 2008 through Bancassurance with promise of doubling the amount after 3 years.Now he expected Rs 24 lakhs and went to the Bank and was told that the Fund value is Rs 7.58 lakhs.I advised him to switch over to balance from equity.He does not want to pay further premium.What should he do?
raj
Replied to prakash praharaj comment 1 decade ago
To believe in doubling the amount in 3 years is lack of financial literacy of buyer. Need to attend ML foundation seminars.

Fund performance and product charges have eaten into the investment. Cover continuance should be possible as this is old ULIP. Check with insurer. Ensure three annual premium payments are done. In that case, you can stop making any further premium payment and withdraw only in year when there will be no surrender charges. It is up to you whether you want to keep the funds in equity, balanced or debt, depending on your risk apetite. The policy will deduct mortality charges (to continue life cover), policy admin charges, but no premium allocation charge (as you are not paying addl premium).
prakash praharaj
Replied to raj comment 1 decade ago
Thanks Raj! In the instant case the Bank was Axis Bank and the Co Met Life.The customer could not disbelieve the Bank staff.But u are right the finacial literacy is very poor and the re is a lot of confusion to distinguish beteween genuine and motivated ones.In fact greed is the driving force and customers get lured with high promises.
Deepak R Khemani
Replied to prakash praharaj comment 1 decade ago
DO NOT SWITCH to Balance option now, any equity losses can be overcome ONLY BY EQUITY gains, If you switch to balance now he may take years to break even, forget making a profit,stop premium and let it continue in Equity option only.
DOUBLE IS NEVER GOING TO HAPPEN NEVER!
Samanta
1 decade ago
I really appreciate your work because it makes clear most of the confusions that common people have.
I have a quarry regarding surrendering the policy: Suppose I have a ULIP policy starting from 2007 & I’ve given 5 years premium. I want to surrender the policy. But the surrender charge is very high (50% in 6th year and decreases @10% in each year resulting 10% in 10th year & nil from 11th year). Somebody is given me the advice to stop giving premium now but withdraw the fund on 11th year. Is it worth to me? The term of the policy is more than 25 year & the charges are also very high even throughout the term.
Deepak R Khemani
Replied to Samanta comment 1 decade ago
If you say that the surrender charges are high what is important is that you see the fund performance,(Growth option only) if it is in line with the market then it makes sense to continue, if it is under performing and plus charges are being deducted then its a win win for the company and a complete loss making proposition for you.
RRK
Replied to Deepak R Khemani comment 1 decade ago
Sir,

I don't think performance justify high expenses. For example, if there is a fund with 15% return but with 6% fees and another fund with 12% return but with 2% fees, the second fund is preferable.

Investor should look at the Net return in their hand and not the gross return before expenses and before taxes.

Samanta,

Without data, it is difficult to say if it good to continue or discontinue. You have to compare your options (a) continue the bad plan with high expenses (b) or surrender and go to another mutual fund.
If you end up losing a lot in surrender, you have to see if you can recover those losses by switching to another mutual fund. This is not easy calculation and that is the subject of this article also - in which Raj has done a great job.

Blindly believing mutual funds are cheaper than ULIP plans are also not going to help you. Read this article.

http://www.rrkfinserv.com/2012/04/ulip-p...
Samanta
Replied to RRK comment 1 decade ago
RRK,
Thank you for your reply.
The name of the policy is Met Smart Plus (Met Life) Annual Premium is 43000. I've given 5 years premium. current fund value is 200608.22.
My Question is that is it possible to stop the premium now and wait another 6 year to withdraw the fund? If that what are the charges will be deducted (e,g, admin charge, fund management Charge etc.)? in other words, will the policy turned into a paid up policy?(for next 6 years)
raj
Replied to Samanta comment 1 decade ago
cover continuance should be possible as this is old ULIP. Check with insurer. In that case, you can stop making any further premium payment and withdraw only in the 11th year to avoid paying any surrender charges. It is up to you whether you want to keep the funds in equity, balanced or debt, depending on your risk apetite. The policy will deduct mortality charges (to continue life cover), policy admin charges, but no premium allocation charge (as you are not paying addl premium).
RRK
Replied to Samanta comment 1 decade ago
Samanta,
What are the charges in current plan for years 6 to 10 ?
- policy admin fee
- fund management fee
- premium allocation charges
RRK
1 decade ago
Raj,

Congratulations on a well researched work ! I can see you spent lot of hours doing home work.

I guess some readers did not get the message correctly. Few readers think you are advocating the traditional insurance plans ( because you are asking policy holders to 'Think Again' in surrendering them ). They missed the message.

By highlighting the problems in surrendering the plan ( your line - bad marriage, worse divorce !), you have brought an important aspect of the traditional insurance plans. They are bad to buy and worse to sell.

It is better you don't buy these plans, so you will not be caught between rock and hard place.

All other data you presented are around that idea.

You also mentioned each case is different and the investor need to re-evaluate their idea of surrendering and buying new investment. I think you should have elaborated more on that.

In my humble opinion, I feel you should write one more article describing how some one should go about doing math in comparing their options. Surrender and buy another or no surrender ?

This may involve some math, but nevertheless in your honest attempt to get the investor community educated, it is very much necessary.
raj
Replied to RRK comment 1 decade ago
Thanks for your comments. Unfortunately, the tables in the article is not being displayed. We are trying to correct the problem. The tables give the necessary calculations. You have valid point about how to make the calculations. It will take some work, excel sheet, number crunching....
Pankaaj Maalde
1 decade ago
Service tax on traditional life insurance plans proposed to be raised from 1.54 to 2.06% in budget. The over all returns will come down further. Even it applies to older policies and one need to review traditional plans at earliest and have to avoid in future. Traditional plans are injurious to your financial health.
subramoney
1 decade ago
OMG really bad article, first time in ML. Author needs to get some basics of behavioural finance before attempting an article like this. Too tired to do a point by point rebuttal...
raj
Replied to subramoney comment 1 decade ago
do give point by point rebuttal. we have put the numbers in the article.

don't even talk about behavioural finance. One financial planner I met blindly was giving advise on surrender to financially illiterate clients. After loosing lot of money, will these people make "good" investment to recover their losses? The grass is always greener on other side.

After reading the article, he agreed paid-up is better than surrender and if policy is giving decent bonus to continue. For new investment, people can plan for MF + term or any other investment. If already have a insurance policy, just giving up is disaster. Some insurance is better than none.
Debashis Basu
Replied to subramoney comment 1 decade ago
Subra, that is too sweeping and offhand. Doesn't help anyone. If you are too tired, maybe you should sleep over your comment :)
Prof Bajaj
1 decade ago
And I am sure, all the insurance agents will agree with this article.

They are having a tough time with their clients surrendering their policies, and these agents renewal commission being at stake.

So all the insurance agents will try their best to highlight and agree with this article so that their clients are discouraged to surrender policies and "agent interest" is protected.

Long Live the agent !!
Deepak R Khemani
Replied to Prof Bajaj comment 1 decade ago
Not only Insurance agents but a lot of sensible people who have seen their hard earned money go down the drain in many equity mutual fund schemes especially the newer ones where NAVs after 4 years are still at Rs 2 for a Rs 10 scheme and many debt schemes which have given single digit returns(Less than Bank Fd's) for the last many years and the number of term plan cases being rejected will agree with the article and if anyone is really offended by Agents getting commissions, he/she is free to take the online route, and beware of the consequences like no servicing no help in claims no help in nomination and address changes and no claim for the beneficiary etc etc!
Prof Bajaj
Replied to Deepak R Khemani comment 1 decade ago
I dont know why you suddenly started commenting on equity mutual fund schemes. I no where made any comments in favor of equity mutual funds.

Anyways, I never say that all equity mutual fund schemes are good. One has to be careful while selecting a good mutual fund.

Also, if one is stuck with a wrong mutual fund also, then my suggestion would be to sell it.

So the formula remains the same across financial products. If you are stuck with a wrong product, analyse if getting rid of it and booking loss makes sense and do so.

Coming to the rejection of term plans, I dont know if there was a rejection because it was a term plan. So you mean to say, that if it is a traditional plan (which fetched a good commission to the agent), it will be settled by the insurance company ??? Whereas the same company will reject a term plan because the agent got less / no commission ???

Great Thoughts I must say !!!
Deepak R Khemani
Replied to Prof Bajaj comment 1 decade ago
You have talked about other asset classes in a post below where you have mentioned ELSS if that is not equity I don't know what is!
Talking of rejection of term plans I was referring to rejection of claim upon death in case of term plan, I hope I have made myself clear I thought that would have been easy for a Prof to understand! You can go and refer to IRDA's website wherein the claim settlement ratios of ALL companies are mentioned and many of these offer term plans and their rejection ratio is pretty high, Moneylife has also written an article on this you may have not read it you will find it in the archives. Only after that you can comment whether somedbody's thoughts are great or not!
Prof Bajaj
Replied to Deepak R Khemani comment 1 decade ago
You are replying to my post here, and referring to my comments made earlier. I dont know how I am supposed to know that you are referring to the below comments.

If you wanted to reply to those comments, then you should have replied below the comment there itself and not to the post here.

Anyways, do you mind telling me which ELSS scheme is having NAV of Rs. 2 or 4 ?? If you cant, then stop talking about other equity mutual fund NAVs as they are out of context here. No-one except you is even talking about the other equity mutual funds.

For term plan, even I am talking about rejection of death claim only. It was easy for me to understand, but was not expecting that you would not understand it.

IRDA website mentions the rejection ratios for companies. Also, the offline term plans, where the agents fill up incorrect info on clients behalf (many a times without even asking the client) is the prime reason for rejection. They dont say that the rejection happened because it was a term plan.

Online term plans have just been launched not more than 2 years back. The newer ones are yet to complete even a year of launch. When people have not even completed one year of purchase, what will be the claim history for online term plans. And when we have such small data history, what can we say about rejection ratio.

Anyways, your point seems that the claim will be rejected if its a term plan (especially online term plan) and it will be settled if its a traditional plan where an agent is involved.

Rather than me commenting on this point, I would request Moneylife to comment on your point. I would like to know if Moneylife agrees or disagrees with this.

This is because, later on, Moneylife (or Mr. Raj) disowns the comments made by people saying, "It is people's view that online term plans are rejected, not Moneylife's Views."

So Moneylife and Mr. Raj, please comment if you agree that a claim is rejected because it is term plan or it is rejected because of some other reasons ??
Deepak R khemani
Replied to Prof Bajaj comment 1 decade ago
Always blame the agent, he has filled the form wrongly, the customer who signed a blank from has not to be blamed at all, Anyway as far as Moneylife agreeing to any ones post is their job, By posting on this site anyone is just airing his own views and not thrusting them on others, you can have a view, I can have a view and moneylife can have a view, it is not necessary that everyone MUST agree with every written article, If someone feels it is right it has to be appreciated, if someone finds the article not in the right spirit, speak up thats it, there is nothing personal going on here, nobody is against anyone, there is a post below where someone has said not to follow this article as it is misleading, Every one has a right to his own view, nothing personal prof!
Deepak R Khemani
1 decade ago
Great work Raj Pradhan, It takes guts to write an article like this, I'm sure none of the new age Financial Planners will agree to what you have written and the comments below indicate that, they have been taught that term plan with PPF or term plan with MF SIP is the panacea for all financial problems whatsoever they maybe, a product traditional or endowment or ULIP can never be written off totally without understanding the need of the person and his requirements, clearly if someone is comfortable with a 7% tax free return alogwith life cover for 25 years or more what is the problem? that is his allocation to debt, his equity allocation can be dealt with separately,
recently jagoinvestor had organized a month long campaign to EDUCATE investors into either surrendering their policies or making them paid up, what if that customer surrendered his existing policy and did not take a new one, took time deciding what policy to take and from which provider and in case he died before that who would be responsible, the planner, the customer or someone else,
Having followed moneylife and knowing you I know that you write unbiased articles, this is another one of them, keep on doing the good work man.
justgrowmymoney
Replied to Deepak R Khemani comment 1 decade ago
Hold on. Hold on. You call people "New age financial planners" implying financial planners existed in the old age. I agree but I want to make sure you are not calling those yester year LIC agents as the old age Financial Planners. A significant number of them (including ones in the chairman's circle) dont know what IRR is let alone how it is calculated. They typically just speak doubling money, tripling money!

Coming to Debt portfolio - when the money is blocked in Endowment plans for 15-25 years or so the perfect alternate is our no-brainer-investment called PPF. Yielding close to 12% about 10-15 years ago PPF still yields a tax free 8.6% as on today which can be the perfect replacement for any Endowment plan where money is locked for long durations.

Indeed putting money year after year on bad investmetns is a sure shot way to ensure we lag behind on returns. The smartest thing is to stop contributing in "MOST CASES". Before surrendering one must calculate the pay out and see if diverting that funds and all future planned premiums to a MF will beat the policy returns. In most cases it will.

Ofcourse one must have a Term Plan in place before surrendering any of these policies.

Just like a blanket statement " Surrender all ULIPs and Endowment Plans" is not correct the reverse blanket statement of "Dont stop contributions to Endowment plans and ULIPs" IS NOT RIGHT AS WELL. Each situation has to be calculated for where best the client's money can be deployed and acted upon if the final outcome is warranted.
Deepak R Khemani
Replied to justgrowmymoney comment 1 decade ago
Finally someone who has written a good and a sensible reply, the last line of your post "(Each situation has to be calculated for where best the client's money can be deployed and acted upon if the final outcome is warranted)"is the most important line,
I am not saying yesteryear LIC agents were financial planners, our grandmothers and grandfathers did a better job than them,
what I am saying that you look at any print media and TV financial planner's interview and the reply to 10 out of 10 queries is a term plan with ppf or term plan with MF SIP that cannot be the solution to all financial ills, I have had a similar discussion with prof bajaj below and everyone out here is trying to prove he or she is right, that is not the question, it is all about a view someone has, I have said earlier in my post(if someone is comfortable with a 7% tax free return alogwith life cover for 25 years or more what is the problem? that is his allocation to debt, his equity allocation can be dealt with separately,) That does not mean that he should not have a PPF account, many people I know pay more than ONE LAKH insurance premium per year and also pay their full contribution in their PPF A/cs. Finally as this article says Think before you surrender your Insurance Policy, it is not about buying a new endowment policy!
raj
Replied to Deepak R Khemani comment 1 decade ago
perfect reply, Mr. Khemani.

The article says that do not surrender just because financial planner says so. Evaluate your returns from existing plan, know what returns you are getting, what you loose with surrender and be realistic about what returns new investment will get.
raj
Replied to Deepak R Khemani comment 1 decade ago
Thanks! There is Q&A in latest magazine (22Mar12) regarding loosing of insurance when surrender and reduction of insurance when paid-up. If not compensated by term-plan, it is lost cause. if compensated by term-plan, but not paid premium over the years, it is lost cause.

Pankaaj Maalde
1 decade ago
The author has not done proper home work before writing this article and presuming that traditional plans gives 7 to 8% tax free return. This is not true. except few guaranteed plans like jeevan shree none of the plan will exceed 6% return. As Financial Planner I always advise that one should not invest in insurance plans and should buy term plans only. When you say partner is bad than divorce is the only best solution available. Traditional Plans are neither flexible nor will beat inflation in the longer run because of high admin and commission charges in the plans. Same with ULIP plans, as it has many charges which reduces over all returns. Some time I also advise to pay surrender charges and come out from ULIP plans as the fund performance in some plan is pathetic. This article will mislead readers as it is far away from reality. Insurance plans are designed for agents to earn high commission.
raj
Replied to Pankaaj Maalde comment 1 decade ago
You have not done homework about returns from traditional plans. Cover story (1 Dec 2011) clearly shows LIC Endowment (traditional) plan gives 7.59% return on investment for age 25 years and term 25 years. If the term is higher (35 year or more), the returns will be 8% or more. The final addition bonus increases with policy term. Do your calculations.

Neither are we saying that one should buy traditional plan (it written in this article). If one has already purchased it, does it make sense to just surrender it (just because financial planners suggest)? We don't agree. Neither does it make sense in ULIP as lot of the charges are already taken by the insurer. You cannot generalise that all ULIP fund performance is pathetic. Most of them invest in same equity just like MF do.

You may have your views about surrender and it is fine. Don't just make generic claim that the article will mislead the reader. The article has all the facts and numbers. There are toxic plans which makes sense to surrender or paid-up, but we don't agree with financial planners who make generic statements in media that one should just blindly surrender insurance policies without really putting down the numbers. Moreover, there is value to forced or disciplined savings and rupee cost average investing.
Pankaaj Maalde
Replied to raj comment 1 decade ago
can you give me the details of any existing plan with sum assured and premium payment with maturity value you are taking. LIC's endowment plan current bonus is Rs. 42 to 45 per 1000. Further LIC has also reduced loyalty addition recently. No way it can give more than 6% i.e. also on higher side.
raj
Replied to Pankaaj Maalde comment 1 decade ago
can you read the cover story (1 Dec 2011) to get details?
Pankaaj Maalde
Replied to raj comment 1 decade ago
You have calculated 8% return post tax that is not correct method of calculating returns. I completely disagree with the article and request readers not to follow this. Even combination of term and PPF will give much better result than traditional plans.
Prof Bajaj
Replied to Pankaaj Maalde comment 1 decade ago
I completely agree with Mr. Pankaaj.

If you calculate returns taking into account tax savings, then other asset classes will give you returns in the range of 15-25% (ELSS, Infra Bonds, PPF etc).

I request Mr. Raj to accept that he has gone wrong this time. We all respect his knowledge, but this time his views are not correct.
raj
Replied to Prof Bajaj comment 1 decade ago
You are missing the point. This article is not for new investment. It is for someone already in insurance policy. If it is not toxic policy, it makes less sense to surrender as the loss is huge to be compensated by new investment. The grass is always greener on other side.

If the all traditional and ULIP were so toxic then please make a case to IRDA and Government to make a blanket ban on the products.

I am not even saying you have to accept the viewpoint. You are free to propogate what you want as much as we are free to write our viewpoint.

Don't even try to mix equity (ELSS) and debt investment. It just shows the confusion in your mind.
raj
Replied to Pankaaj Maalde comment 1 decade ago
I don't even think you have read the cover story as i have not even calculated 8%. It is 7.59%. You have to give reasons why 7.59% calculation (1 Dec 2011 cover story) is wrong. Without giving reason it is same as you advising clients to surrender without giving any numbers.

It just shows you not only cannot calculate, you don't even read articles correctly. Talk with numbers, not words.
Pankaaj Maalde
Replied to raj comment 1 decade ago
I have not read your old article, but your this article has slide which shows the post tax return of 8.62% and 8.53%. Planners always gives reasons in writing while recommending any advise not only surrendering policy. Even without reading your previous article, I am sure that there is some calculation mistake (knowingly or unknowingly) or might be you have presumed higher maturity value which is never likely to be given to policy holder.
justgrowmymoney
1 decade ago
Hi - Can you help explain with some hypothetical example why surrendering does not make sense?

I see your arguments here are again all talk and no numbers and that does not help in finance!
raj
Replied to justgrowmymoney comment 1 decade ago
can you see the two tables (one on first page and another on second page) to see the numbers? It's already there.
geo thomas
1 decade ago
i find this article written by an lic advisor, whose policy is been surrendered or made paid up, i do agree with you for clients who have lot of money and dont worry abt the money paid as premium for endowment plans, but i have a friend who is paying 60k in an endowment plan, he gets an salary of 25k monthly, he is promised 10.3% return, poor guy he cannot do any other investment as he cannot afford to do any new investment, so all his short term and medium term goals are in problem, now tell me what should my client do with such an product which does not have any flexibility and liquidity.if the product hurts plz take decision immediately or carry the burden. i personally will surrender my policy.
Prof Bajaj
Replied to geo thomas comment 1 decade ago
I totally agree with Mr. Geo Thomas.

Even I have so many people around me facing similar problems. Even I was facing the same problem 2 years back and finally got rid of the policy by surrendering it.

Agreed, I got a pathetic surrender value of less than 50% of what I paid. But then I invested that amount in the right products and have reached my original amount in 2 years.
raj
Replied to geo thomas comment 1 decade ago
Your claim about article being written by lic advisor is ludicrous.

If a person decides to pay buy policy which he/she cannot afford, there is need for financial literacy. Please tell him/her to attend ML foundation seminar. Believing promise of 10.3% return from insurance policy also needs financial literacy.

The policy should offer paid-up after 3 premium payments. It will be better than surrendering.
geo thomas
Replied to raj comment 1 decade ago
Hi raj, i tell my clients to surrender, but if he doesnot want to loose the premium i suggest paid up, how many agent of lic actually knows the product, when you are young they sell you jeevan saral,jeevan anand, money back endowment plans, once u get married they will sell you jeevan sathi, for kids komal jeevan and if some one wants term they will give you bima kiran, other than that ask for other policy they have to look in their premium chart book, they just tell lic is govt backed and private company can run with your money, now what do you think a normal middleclass client will do, i have read other post where it is written that lic will pay the claim and cannot be said the same for private company, now what financial education is provided by ur website by giving wrong information on claim settlement, if a guy gives all information correct in the proposal form no company can reject the claim.
raj
Replied to geo thomas comment 1 decade ago
You do understand that you are referring to a post by someone who says that private insurer will not pay claim. IT IS NOT SOMETHING WRITTEN BY MONEYLIFE WRITER. hope you understand the difference. The post can be written by anyone....there is no restriction... If you client wants to go with the post rather than what Moneylife writes, there is still a need for financial literacy for your client.
Krishnaraj Rao
1 decade ago
Where were you guys all my life? This is the sort of healthy skepticism and genuine contrarian thinking that I've dreamed about and craved for!
This is the sort of analysis that tells the Insurance agents, DSAs and other con men out there, "Hey you! Everybody isn't stoopid and myopic! Bugger off!"
Warmly,
Krish
raj
Replied to Krishnaraj Rao comment 1 decade ago
thanks for your comment!
Kalyanaraman
1 decade ago
One disadvantage of LIC investment oriented policy is your ability to retain insurance depends upon ur ability to pay high premium yearly. On the other hand if u buy term and invest elsewhere in times of difficulties investment can be deferred, and insurance retained by paying nominal term premium.
Secondly by discontinuing a wrongly purchased policy one is avoiding putting good money after bad money for long term - the basic premise is the policy was wrongly purchased.
raj
Replied to Kalyanaraman comment 1 decade ago
the article is about what to do in case you have purchased insurance policy (trad or ULIP) for some reason. Turning to paid up will do better than just surrendering the policy. If the policy was wrongly purchased, but is giving ok returns it does not make sense to even do paid-up. Just getting lured by another investment opportunity which leads to getting rid of existing policy will not help.

Term plan is surely best insurance product.
kalyanaraman
Replied to raj comment 1 decade ago
Even between surrendering and making a policy paid up I feel surrendering of an endowment type policy is better as the paid up value compared on discounted cash flow method with surrender value may not appear attractive. In principal having committed a mistake do not put good money after bad money and get cash on hand instead of waiting for long and put the cash to wiser use.
Prof Bajaj
Replied to kalyanaraman comment 1 decade ago
I totally Agree with Mr. Kalyanaraman. It wont be wise to continue making the same mistake even after realising that its a mistake.
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