LIC Jeevan Saral is expensive endowment plan that isn't beneficial as insurance, nor as an investment
08-Oct-2014 •Research Desk
I am 30 years old and have been paying premium for LIC Jivan Saral for the last 7 years (₹750000 sum assured). The financial planner has asked me to surrender the plan.
My mother is 54 and we have been paying premium towards LIC Jivan Saral for the last 5 years (₹125000 sum assured) -the financial planner has suggested I surrender the plan.
My father is 62 and has been subscribing to the same plan for 3 years (₹250000 sum assured). The planner has again suggested surrendering it.
Instead, the financial planner recommends Apollo Standard Individual Health Insurance for me for 1 year for ₹5 lakh. He also suggests Apollo Standard Family Floater Health Plan for my parents at ₹5 lakh and a maximum critical illness cover for me at ₹10 lakh.
LIC Jeevan Saral is an endowment policy which is silent on its expenses just like other plans in this category. If you survive the policy term, it will pay a sum assured plus loyalty bonus. Loyalty additions may be paid from 10th policy year onwards at the discretion of the insurer.
Your financial planner has rightly suggested that you surrender this plan as such policies do not prove beneficial for either insurance or investment. The sum assured of ₹750,000 would not suffice for your family in the event of your demise. You need to have a bigger cover.
Though you will make losses upon surrender, it is not wise to continue investing in a bad product. According to the policy rules, your Surrender Value will be the greater of the guaranteed surrender value and special surrender value. This is how they are calculated.
Guaranteed Surrender Value: Guaranteed Surrender value is equal to 30% of the total amount of premiums paid excluding the premiums for the first year and all the extra premiums.
Special Surrender Value: 80% of Maturity Sum Assured if you have paid premiums for 3 or more years but less than 4 years. 90% of the Maturity Sum Assured, if you have paid for 4 or more years but less than 5 years. And 100% of the Maturity Sum Assured, if 5 or more years' premiums have been paid. Therefore, the three different policies you own will fetch you differing surrender values based on these rules.
But you are right in asking if you need a term plan. You do, and mere health insurance will not be enough. Life insurance should be bought by those individuals who have financial dependents. If your mother is non-working and father is retired, they do not need life insurance. But you must go for a term life insurance plan. Aviva i-Life, HDFC Click2Protect are good online term plans. As stated earlier you need a bigger cover. For calculating an adequate cover, follow the link: How to Really Buy Insurance.
The plans that you have mentioned are good health insurance plans. You and your parents need health insurance as well. While medical emergency is an uncertain event older people are more prone to it. Your adviser has rightly recommended an individual cover for you and a floater plan for your parents because, at this age, they might need to use full sum insured in an year leaving no insurance cover for you, just in case all three of you go for a floater cover. You may go with the suggested plans.