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Should I surrender my insurance policies?

LIC Jeevan Mitra is an endowment plan which is an insurance-cum-investment product. Such products mostly fail to offer adequate insurance cover and they also mostly don't offer good returns

I have purchased two policies from LIC

  1. LIC Jeevan Mitra (Triple Cover Endowment) plan in February 2010. The policy and premium payment term is 27 years. The sum assured is ₹3 lakh. The annual premium is ₹12,300. I have paid seven premiums till date.
  2. LIC Amulya Jeevan plan in November 2010. The policy and premium payment term is 35 years. The sum assured is ₹40 lakh. The annual premium is ₹11,760.

Would it be worthwhile to surrender both policies and buy a single term plan (from HDFC or Kotak) for 40 years.
P.S. I am okay receiving 30-40 per cent of the premiums paid for Jeevan Mitra if the long term returns will offset the loss I will make by surrendering it.

- Sanket Ajay Shah

LIC Jeevan Mitra is an endowment plan which is an insurance-cum-investment product. Such products mostly fail to offer adequate insurance cover and they also mostly don't offer good returns. If you surrender the policy, you will incur loss. However, surrendering it will help you to stop a bad investment and earn better returns in a pure investment product. The plan offers a guaranteed surrender value of only 30 per cent of the total premiums paid minus the first year's premium, which will be approximately ₹22,140 [30% of (86100-12300)]. LIC may pay a Special Surrender Value which is either equal to or more than the Guaranteed Surrender Value.

Lets say, you surrender the plan and invest the surrender value and further premiums in a diversified mutual fund, assuming 12% returns, you will get ₹12.06 lakh at the end of 20 years. As you can see, it is four times the sum assured of your policy.

LIC Amulya Jeevan is a pure term plan. There is no option of surrender in a pure term plan. LIC term plans are a bit expensive than the plans from private insurers. You have time till Nov for the next premium due date. You can carefully compare the other term plans that are available and consider closing this term plan and start afresh. You may consider buying Aegon Religare iTerm Plan, HDFC Life Click2Protect and Max Life Online Term Plan. If you are eligible to buy an online policy, go for online term plans. They are cheaper than offline plans.

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