Almost all insurance policies have an exit option, although it comes at a cost...
23-Apr-2013 •Research Desk
I started investing Rs 2,00,000 per year since 2010 in Saving Assured Plan of HDFC Life for a 10-year term. I was told that the lock-in period was three years, but now I have learnt that it’s not three year, and I have to remain invested for ten years. Also, the returns from this policy are not transparent. I have been told that if I stop paying premium now, which is after completing three policy years, my policy will be kept as a paid-up one. What is the best option for me now?
- Ramesh Kumar
HDFC Savings Assurance Plan is a traditional insurance policy in category of ‘with profits’ savings plans. You have rightly identified that such policies do not disclose policy charges. The bonus that they mention while selling is also not guaranteed. This policy had declared a reversionary bonus at 3.25 per cent in FY 2011-12. Reversionary bonus is derived from a policy’s participation in company profits. These bonuses are declared regularly on the sum assured, and paid at the time of claim settlement.
Though surrendering now will put you at loss, but if you are not willing to continue with the plan it is better to surrender than hold a paid-up policy. Insurers continue to deduct regular charges in paid-up policies. Your policy will enter the paid-up mode if the premium payment is stopped after three years. A paid-up policy gives lesser sum assured at maturity or in the event of policyholder’s death.
Your policy allows surrender after three years if the premiums have been paid timely and without default. Since you have completed three policy years, if you stop paying premiums now, your policy will become paid-up and acquire a minimum guaranteed surrender value.
In your policy this value is zero in respect of premiums paid in the first year and 50 per cent of basic premiums (in respect of the basic benefit) paid after the first year. Hence, the minimum guaranteed surrender value comes out to be Rs 2 lakh (50 per cent of second and third year's premium).
Moreover, continuing with the policy is not recommended due to low annual bonus rate. Even a Bank FD would fetch you higher post tax returns. Make sure you purchase an adequate life insurance before surrendering. Term Plans are the cheapest and best life insurance plans till date.