What to do with insurance policies? | Value Research You are paying a huge premium for such a small cover. You should consider surrendering your expensive policies
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What to do with insurance policies?

You are paying a huge premium for such a small cover. You should consider surrendering your expensive policies

I am a housewife with two children. We are NRIs. My husband's annual income is around 40 lakhs. His age is 46 and mine is 36. My children are 12 and 4. After reading your comments on insurance policies, I have a bad feeling on how I have wasted money in insurance policies. I am providing the list of our insurance policies. Kindly advice if i should continue with them or surrender them. Also suggest what would be the best policy and investments for us. Insurance plans in my name are as below:

  1. Bajaj Allianz capital unit gain, commenced on 01/08/2007, maturity in 2037, paid premium of ₹25000 for three years and then discontinued.
  2. HDFC Moneyback Assurance, commenced on 20/03/2004, maturity in 2023, paying quarterly premium of ₹. 2975.
  3. LIC Profit Plus, commenced on 31/03/2008, maturity in 2028, paid one time premium of ₹. 25000

Insurance policies in name of my husband are as below:

  1. HDFC,S Children's Double benefit plan, commenced on 18/11/2003, maturity in 2023, paying quarterly premium of ₹. 2657.
  2. LIC Market Plus, commenced on 31/03/2008, maturity in 2018, paid one time premium of ₹. 25000.
  3. LIC Moneyback Policy with profits, commenced on 15/02/2002, maturity in 2022, paying ₹. 6700 annual premium
  4. LIC New Moneyback, commenced on 12/09/2011, maturity in 2036, paying ₹61759 as annual premium
  5. ICICI Pru Lifestage RP, commenced on 11/03/2008, maturity in 2018, paid ₹30,000 premium for three years and then discontinued.

I have LIC Jeevan Kishore policy in my daughter's name, commenced on 12/09/2011, maturity in 2031. I am paying annual premium of ₹13700.
- Karthika Arjunan

You are paying an annual premium of ₹2.33 lakh for an approximate insurance cover of 25 lakh. You paying too much money for such a small insurance cover. This is because you have bought policies that have both insurance and investment elements in them. The problem with these plans is that they offer very little cover for a large premium and they are also poor investment choices.

Look at the returns (reversionary bonus is added annually to the sum assured and paid on maturity or death of the policyholder; terminal bonus is one-time payment on maturity or death of the policyholder) offered by your policies:

  • HDFC Children's Double Benefit Plan has given a reversionary bonus of 2% since 2009-10. It has also paid a terminal bonus of 8.5% for 2012, 2013 and 9.5% for 2014.
  • HDFC Money Back Assurance has given a reversionary bonus of 2% since 2009-10. It has also paid a terminal bonus of 12.50% for 2012, 2013 and 13% for 2014.
  • LIC Money Back Policy has given a reversionary bonus of 3.9% since 2009-10 and a terminal bonus of 3% for 2009-10.
  • LIC New Money Back Policy has paid a reversionary bonus of 4.4% since 2013-14.

You must have figured out now that you made really bad investments.

Other policies in your portfolio are also equally bad choices. Jeevan Kishore insures children. You don't need insurance cover for your children. You should understand that insurance is a means to overcome financial loss and not emotional loss. Only an earning member needs to insure himself for financial stability of his dependents after him.

Read more about this plan here:

ICICI Pru Lifestage Regular Plan is a unit linked policy with high charges that eat into your returns.

LIC Market Plus is a unit linked deferred pension plan. It has high charges.

We could not find details of Bajaj Allianz Capital Unit Gain.

You don't have an easy way out. You will have to surrender your policies. You may lose some money in the process, but it will help you curb further losses.

Keep your insurance and investment separate. Always buy a term insurance plan to buy a life cover. They are the cheapest option to buy a large life insurance cover. It is very important to buy an adequate life insurance cover because the insurance proceeds should be large enough to take care of the financial needs of the dependents. You need to consider inflation as well.

Read more on how to calculate your term insurance value: Calculating Sum Assured

Similarly, always opt for mutual fund schemes for your investment needs. Invest via a systematic investment plan (SIP) in top-rated equity mutual funds for your long term financial goals that are five years away or longer.


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