I want to surrender my Jeevan Kishore policies that I have taken for my children. I have paid premiums for four years (₹26,400 per annum). The surrender value is only around 30%. I want to invest in mutual funds. Should I surrender now or just stop paying the premiums as suggested by some experts. Please advise.
--Jesudasan A
Jeevan Kishore is an endowment plan for children below 12 years. We don't believe children need insurance cover. Insurance is meant to compensate the loss of income. Since children don't earn, you don't suffer any loss of income. Insurance can't compensate the emotional loss of losing children. This is the reason why we recommend only term plans to cover the life of our readers with financial dependents.
Coming back to your situation, you are stuck with a bad investment for your child. As with any endowment plan, there is no transparency on any expenses or bonus. We do not recommend continuing with a bad investment. At least that will help you to cut your future losses, and earn better returns on your future investments. Discontinue the policy and take the money out and start investing in one or two balanced mutual funds regularly via a systematic investment plan. These funds are ideal for first-time investors in stocks as they invest around 65 per cent in equity and the rest in debt. They are relatively stable and they have the potential to offer double-digit returns over a long period. An endowment plan, on the other, may offer around 4-5-per cent return.
Keep in mind that you do not need any special child plans to fulfil needs of your children. Invest simply via mutual funds. Pick a scheme that matches your investment horizon. General rule is to opt for equity schemes for goals that are away five years or more. A few years before the actual event, start transferring the money to a safer avenue so that a sudden change in the stock market doesn't upset your plans.
See also The Illusion of Children-Specific products:
This article was originally published on August 27, 2015.
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