I had bought the HDFC UL Wealth Builder policy in October 2009. I have invested ₹3 lakh in it in 2009, 2010 and 2011, and stopped after the minimum subscription of 3 years. The current value of my investment is only ₹9.5 lakh. The returns are even lower than a savings account's interest. Should I withdraw my investment?
-Karunakar V. Naidu
A unit linked policy is a mix of insurance and investment. This plan covers you for 5 times the annualized premium which means that today you have a life insurance worth ₹15 lakh. We are assuming you selected a 3- year premium pay option. From your annual premium, the insurer deducts a mortality charge for providing insurance. The remaining portion is allocated towards investment after deduction of various charges. First is the Premium Allocation charge which gets deducted at the time of each premium payment. It was 10% during first year that reduced to 8% for second and third year of premium payments. Apart from premium allocation charge, there is the Fund Management charge which stands at 1.35% per annum and Policy Administration charge which is 0.25% of original annualised premium. This policy has huge charges during initial years which have effectively eaten up returns generated by investment component. It would be better for you to have taken pure term cover and invested the rest in a mutual fund which would have offered better returns with lower costs.
You are still better off than many other investors who have made a loss on their ULIP investments. You have completed 4 years with this policy. If you surrender now, you will have to incur a surrender charge amounting to 15% of fund value. However if you surrender after October, 2014, i.e., after completion of five policy years, the surrender penalty will reduce to zero. Thus it is better to wait for few more months and surrender thereafter. Before surrendering this plan you must buy an online term plan with an adequate coverage.
If you are interested in long term wealth creation consider SIP in a diversified equity fund.