VR Logo

What will happen if I make my policy paid-up?

You will make losses if you surrender the policy, as the guaranteed surrender value will be equal to 30% of the total amount of premiums paid minus first-year premium

I have an LIC Jeevan Anand Policy. Following are the details:
Age at the time of buying the policy: 23 (current age 25)
Policy term: 21 years
Premium: ₹15,144 per quarter
Sum Assured: ₹12 lakh
Premiums paid: 11
I now realise that I am under-insured with a high premium. The options I have is to surrender the policy or make it paid up or continue paying. I feel the best option is to make it paid up after one or two more premiums and then take up a term insurance. What happens if I make it paid up? Since my agent is a family member, I also need to know how paying up will affect his subsequent incomes so I can be prepared for a talk with him.

- Ankit Jain

LIC's Jeevan Anand policy is an endowment plan that has both insurance and investment elements in it. You are right that such insurance-cum-investment plans typically offer a very small insurance cover for a high premium. They also offer modest returns.

Let us see how the surrender and paid-up options would work for you.

One, converting the policy into a paid-up policy will lock your money for the term of the policy. The paid up value will be paid out at maturity or on death claim. If you make the policy paid up, the paid up value will be paid to you at the end of the policy term (which will be after 19 years). The paid up value will be around ₹1,71,428 {sum assured multiplied by (number of years the premiums paid/premium paying term)}.

Two, you can surrender the policy only after paying premiums for three years. You will make losses if you surrender the policy, as the guaranteed surrender value will be equal to 30% of the total amount of premiums paid minus first-year premium. Your surrender value will be approximately ₹36,346 [30% of (₹1,81,728 minus ₹60,576)]. LIC might pay a special surrender value - which may be higher than the guaranteed surrender value.

As you can see, if you make it a paid-up policy, you will get ₹1.71 lakh after 19 years. If you surrender the policy after paying one more premium, you will get ₹36,346 or a little more. If you invest this money in an equity mutual fund, you may be able to get ₹3.13 lakhs (assuming a 12 per cent return per year). You should contact LIC and get the exact paid up value and surrender value and compare both the values to take a final decision.

As for your relative-cum-insurance advisor, the person might have got at least 25 per cent of your first year's premium as commission. The commission reduces to 7.5 to 5.0 per cent in the subsequent years.

In future, do not try to help relatives and buy insurance plans with investment element in them. Buy a large life insurance cover with a pure term insurance plan and start investing in equity mutual funds to meet your long-term financial goals.

Post Your Query