ULIPs are offer insurance cover at higher cost and levy hefty charges that bring down returns
28-Nov-2013 •Research Desk
I am 40 and invested in Kotak Headstart Future Protect. The policy commenced in 2008 with a premium term and benefit term of 20 years. I have paid Rs 50,000 annually as premium for three years and stopped thereafter. The present surrender value of my policy is 88 per cent of the premium paid, after deducting 1 per cent of fund value. Should I terminate the policy?
-Ashish
Kotak Headstart Future Protect is a unit linked policy that offers insurance and investment in a single product. This policy levies higher charges during the initial three years.
Even though you stopped paying premiums after three years, the policy contains an Automatic Cover Maintenance (ACM) feature which has continued to provide insurance protection. This feature will continue your cover for two policy years from due date of first unpaid premium or till surrender value reduces to one year's premium after deducting applicable charges, whichever is earlier.
The Additional Death Benefit and the Accidental Disability Guardian Benefit Rider (if opted for) cease when you stop paying premiums. However, other rider benefits, if any will continue after deducting applicable charges. Other policy charges will also get deducted from fund value during ACM period. After completion of ACM period, policy will terminate for surrender value of the policy. However, you can revive the policy during this period or ask insurance company to continue the policy in ACM mode if you wish to carry on with the policy.
Your policy is in the ACM mode. You should ask the insurance company about its current status. We advise you to discontinue this policy because it is best to separate insurance and investment. ULIPs cannot fulfill either of the needs. As an insurance policy these are too expensive and levy hefty charges that bring down returns, which any other investment product could have offered.
You can surrender the policy for its present surrender value fund buy an online term insurance. A pure term policy costs less with adequate coverage. For instance, Aviva i-life term plan would cost you nearly Rs 10,000 a year for a 20 year cover of Rs 40 lakh. You can invest the surplus in any debt or equity fund according to your needs.
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