I have an LIC New Endowment and Jeevan Saral (With Profits) policies. Both the policies were taken in 2012 with a premium payment term of 35 and 15 years with premiums of ₹30360 and ₹16376 respectively. I want to know if I am better off surrendering these policies or continue paying premiums.
- Devesh Joshi
You are better off surrendering them. Both LIC Jeevan Saral & New Endowment are a combination of endowment and whole life plans. They cover you against death throughout your life (no fixed term), paying a lump sum amount on survival at the end of a chosen term.
These policies are expensive and lack transparency as well. These type of policies do not even beat inflation, even a bank fixed deposit will give you better guaranteed returns.
Assume you invested the yearly premium of ₹30360 in an FD for 35 years, the maturity value assuming 8 percent return, would be ₹59.78 lakh in the first case. If you invested ₹16376 in an FD for 15 years, the maturity value again assuming 8 percent return, would be ₹4.9 lakh which is much more than the sum assured of your policy. These policies have not given returns beyond 5-6 percent in the past and it is unlikely they will offer more than this in future.
You can consider surrendering this policy. You will incur a loss, but it will save you opportunity losses. The surrender value of a Jeevan Saral policy 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 the first-year's premium and all the extra premiums and premiums for accident benefit / term rider. Special surrender value will be equal to 80% of maturity sum assured if 3 or more years' but less than 4 years' premiums have been paid.
In LIC's new endowment plan the Guaranteed Surrender value is a percentage of total premiums paid excluding extra premiums and premiums for riders, if opted for. This percentage will depend on the policy term and policy year in which the policy is surrendered
Term plan is all that you need to financially secure your dependants in case you are gone. For your long term investments, you must choose diversified equity mutual fund based on your risk tolerance.