I am a 29-year old professional. My wife and I, together, earn Rs 1.4 lakh each month. I have a Kotak Smart Advantage ULIP policy (with Kotak Opportunities Fund) and have been paying Rs 3,000 every month since January 2009. Is it a good idea to continue with this policy? We do not have any other life insurance apart from the ones provided by our employer. We don't have any dependants, do we need insurance?
-Nikhil
We generally advise readers to stay away from Ulips because these are front-loaded products that charge high premiums in early years and their benefits do not justify the cost.
Even though you don't have dependents, you both must insure your lives because you are going to need insurance protection once you plan to go the family way. Also, buying insurance at this age will cost you less. We recommended you to buy an online term insurance as soon as possible. A delay will add on to the premium costs. Make sure to separate your insurance needs from those of investment.
Kotak Smart Advantage is a Ulip with Assured Addition Advantage. This benefit pays a fixed amount at the end of premium payment term, that will be calculated on the basis of first-year premium and the term of the policy. Additionally, the benefit will credit an assured bonus at end the of certain years starting from the 10th year. This bonus will be calculated as a percentage of average value of funds in three years preceding the benefit allocation year provided your policy is in force and all due premiums are fully paid till date.
If you surrender now, surrender charges will be 4 per cent of your fund value. Also, you will lose your first year premium if you surrender any time during the premium payment term. At the same time, continuing with the policy is not a wise decision. It is better you surrender this policy now and limit your losses.
This article was originally published on December 06, 2013.
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