I am 30 years old. I have two insurance policies.
- LIC's new Bima Gold T179 - a 16 year policy with a premium of ₹30000 a year. Life cover: ₹6 lakh.
- ICICI Pru Life Wealth Builder -10 years, Premium -₹30000 a year. Life cover: ₹3 lakh- ULIP.
I bought the LIC plan in 2010 and have paid 4 premiums on the Moneyback policy. I will receive 30% this November as Money-back. I took the ICICI policy in 2011 and have paid 3 premiums and the next premium is due in October.
I have started SIPs in two ELSS from last November, investing ₹1000 each in Axis and ICICI funds.
Now I want to increase investing amount in ELSS funds by surrendering one of the policies. Please provide advice on which policy I should surrender now. When can I get the policy return amount if I surrender now? What are the tax implications on surrendering?
- Balaji K.N
Given that traditional insurance products offer very low returns, it is a good idea to surrender your LIC moneyback plan. However, do note that ELSS schemes are equity funds and thus do carry risks to your capital, unlike the traditional insurance plans. But if you plan to hold for the long term though, returns from ELSS plans can be superior.
We recommend you surrender LIC Bima Gold because there is no disclosure of policy expenses and this policy has a longer term of 16 years, which will mean a bigger opportunity cost on returns. Though surrendering the policy entails loss of some of the money you have already invested, you can avoid sinking your future savings into a low return product.
According to the policy terms, this policy will return 15% of the Sum Assured (and not 30% as you have stated) at the end of 4 years. If you surrender the policy today, you will suffer a cost to the extent of surrender charges. The surrender value on this policy is 30% of total premiums paid till date less first year's premium and any extra premiums paid for rider. Any amount of survival benefit already paid will also be deducted. You need to fill the surrender form in branch office and branch officer will let you know when you will receive the money. Your policy has not completed 5 years so, the surrender value will be added to your income and taxed as per applicable tax slab rate.
This article was originally published on July 29, 2015.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
