I am 28 years old and took the LIC's new Bima Gold policy for 20 years, six years ago. This is for a sum assured of ₹15,00,000 with a ₹51,696 annual premium. Similarly I bought ICICI Prudential Pinnacle ULIP in 2009 for a policy term of 10 years, with a sum assured of ₹2,50,000 and 3 premium payments. My financial planner asked me to surrender ICICI Pinnacle, with low returns. As 5 years have elapsed, he advised that parking money in it will not give good returns. Instead he asked me to purchase debt funds with same money. He also asked me to surrender the LIC policy and take a pure term insurance plan. Shall I take his advice?
- Avnish Sharma
It is best to surrender them, though you may incur losses. LIC New Bima Gold is a money back policy which pays a specific percentage of sum assured starting from 4th policy year. It will pay loyalty additions only at end of policy term which in your case is 20 years. There is no indication of the exact loyalty additions. The major problem with such policies is that there is no disclosure of their charges.
ICICI Pru Pinnacle is NAV Guarantee policy that guarantees the highest NAV recorded during first 7 policy years. However, to lock into the returns, fund managers often switch the funds into debt which may lower the returns from such plans. Do note that NAV Guarantee policies will not deliver the highest returns from stock market over the holding period. In fact, IRDA has already barred new policies of this nature in the interest of investors.
Though you will have to incur a surrender penalty, it is best not to continue with these plans. Your advisor is correct in saying that you must go for an adequate term cover and invest the remaining funds into mutual funds. If you wish to invest for a long term say 5 years or above, equity funds or balanced funds would be better options than pure debt funds. Invest as per your goals.
This article was originally published on January 09, 2015.
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