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Surrender of endowment policy closer to maturity

Endowment policies fail on two counts: they don't offer adequate insurance cover and they also don't offer good returns

My endowment policy will mature in 2018 (20 year plan). I started it when I was in Saudi Arabia and later in 2010 it has been transferred to India. What will be the benefits and losses of this policy if I exit now?
- Mohammed Ismail

Endowment plans are hybrid plans with both an insurance and investment element. Such policies fail on two counts: they generally don't offer adequate insurance cover and they also don't offer good returns. We generally recommend surrendering these policies. However in your case, the policy is due to mature in two years after 18 years of paying premiums. Therefore it may not be wise to surrender it now. If you surrender the policy now you will incur a huge loss. Some policies offer only 30 percent of the premiums paid as surrender value, that too after deducting the first year's premium. The other option is to convert the policy into a paid up policy. You can contact the insurance company to find out about the paid up amount and compare it with the surrender value and then see if you would like to exit. Make sure you compare the returns with a bank savings account interest for further clarity.

In future, do not mix insurance and investment by opting for such hybrid products. Always buy a pure term life insurance for an adequate life cover to protect your dependents. For investments always choose pure investment products like mutual funds, with which you will get better returns.

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