Should I surrender and buy a term plan?

I have an LIC Jeevan Saral policy with a yearly premium of ₹18,000 and Post office Life Insurance with a yearly premium of ₹33,000. I am 28 years old. My financial advisor advised me to surrender these policies and get a term insurance. But I will lose a lot of money if I surrender these policies, almost 50 per cent of the money. I have these policies for the last five years. What should I do?
- Ketan

Your financial advisor is right. It is always better to buy a term insurance plan to buy an adequate life insurance cover. If you buy costlier insurance policies with investment elements in them, you won't be able to buy an adequate life insurance cover. Such policies may also offer modest returns. That is why it may be a better idea to surrender these expensive policies and buy a term insurance policy. It is true that you may lose money if you surrender these policies, but it will help you cut losses and also earn better returns on your investments elsewhere.

Now, let us look at your insurance policies. The fist policy, LIC Jeevan Saral, is an endowment policy which is silent on its expenses just like other plans in this category. You can normally surrender endowment policies after three years. The surrender value will be the greater of the guaranteed surrender value and special surrender. The guaranteed surrender value will be equal to 30% of the total amount of premiums paid minus first year's premium and all the extra premiums for extra benefits or riders. Special Surrender Value will be 80% of Maturity Sum Assured if three or more years' but less than four years' premiums have been paid; 90% of the Maturity Sum Assured if four or more years' but less than five years' premiums have been paid and 100 per cent of the Maturity Sum Assured if five or more years' premiums have been paid. The Maturity Sum Assured here means the Maturity Sum Assured corresponding to the term for which premiums have been paid under the policy.

Postal Life Insurance offers six types of plans, all of them are insurance-cum-investment products. You can surrender these policies after three years. You may contact the insurer to get the full details and surrender value.

This article was originally published on March 18, 2016.