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Should I surrender and pay off my home loan?

BSLI Flexi Save Plus II is a Unit Linked Insurance Plan (ULIP) or an insurance plan with an investment element in it

I have 2 ULIP policies from Birla Sun Life - one in my name and the other one in my wife's name. The policy is named BSLI Flexi Save Plus II. I have paid premium of ₹60,000 every year on both of them from 2007 till 2015 (8 years). However, the fund value today is around ₹5,50,000, which means an annual return of less than 4 per cent. Even though I stopped paying the premium, they are still deducting around ₹415 and ₹17 towards cost of insurance and service tax respectively. I would like to withdraw this amount now and use it to pay off part of my housing loan. What is your opinion?
- Anandaroop Bhattacharya

BSLI Flexi Save Plus II is a Unit Linked Insurance Plan (ULIP) or an insurance plan with an investment element in it. You may consider surrendering it. You may use the surrender value to pay off a part of your home loan if you have any problem paying the regular EMI. You should remember that you may lose some tax benefits if you prepay your home loan.

ULIP offers you a life insurance cover along with an investment option. Because of this, your entire premium does not get invested. A part of it goes towards life insurance (mortality charges), administration expenses, fund management charge and premium allocation charges. As you are aware , your total premium was ₹4.80 lakh and the fund value is ₹5.50 lakh in 8 years in each of your policy. That means you have earned only 3 percent return in the last eight years. This is much lower than the interest offered by bank savings account. Further, even after making the policy paid, there will be fixed charges applicable on the policy for full tenure and this will be utilized from your existing fund/units. Since you have completed the lock-in period (in this plan it was 3 years), you can surrender this policy without any surrender charges. Surrender value will be the fund value at the time of the surrender.

In future, do not buy insurance products for investment. It is always better to buy a pure term plan to get an adequate insurance cover to take care of your financial dependents. You can buy a very large cover with a low premium in a pure term insurance plan. You should opt for pure investment product like an equity mutual fund schemes to achieve your long-term financial needs.

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