I am 35 years old. I would like to buy a pure term insurance policy and stop paying premium for my current LIC policies. Please suggest whether to surrender or make them as paid-up policies. I am thinking of paying a one-time premium payment for the term insurance policy by making use of the surrendered value of these three LIC policies. My current LIC policies are (as on Mar-2016):
- Jeevan Anand (T. No. 149); Commencement Year: 2006; Policy Term: 73 (Premium paying term: 25 years); Premium Amount - Yearly: ₹12,460; Sum Assured: ₹3 lakh; Vested Bonus (as of Jan-2016): ₹1,24,200
- Jeevan Rekha (T. No. 152): Commencement Year: 2006; Policy Term: 73 (Premium term 25): Premium amount - yearly: ₹19,267; Sum assured: ₹5 lakh; Vested Bonus (as on January 2016): 1,52,500
- Endowment Assurance Policy (T. No. 14): Commencement year: 2007; Policy term: 20 years (Premium term: 20 years); Premium amount - yearly: ₹9,733; Sum assured: ₹2 lakh; Vested Bonus (as on January, 2016) ₹58,800.
All your policies are endowment plans that have insurance and investment element in them. If you surrender them, you will incur losses. But it will save further losses. Since you have paid premiums for more than three years, all three policies will offers you a surrender value of 30% of the premiums paid minus the first year's premium.
Converting the policy into a paid-up policy will lock your money for the term of the policy. You can contact the insurance company to find out about the paid up amount. Compare it with the surrender value to arrive at an informed decision. Make sure you compare the returns with a bank savings account interest for further clarity.
Before choosing a single premium for a term insurance product, you must check whether the insurance company/product of your choice offers you the option of a single premium. Another factor to consider is the tax break available on life insurance premiums. If you are paying a regular premium, you may be able to claim a tax deduction on it every year under Section 80C. However, if you are making a single premium, you may not be able to claim tax deduction on the entire amount in a year. This is especially true if you already have regular investments covered under Section 80C. For example, a ₹1 crore policy would call for a premium of over ₹1.5 lakh. This means you may not be able to claim the tax break on entire premium in a year, especially if you have already have regular investments under Section 80C.
This article was originally published on March 17, 2016.
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