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I have been reading regularly on your website to avoid ULIPs and endowment policy for investment purpose. I have three policies: BSL- Wealth Aspire Plan and Kotak Premier Endowment Plan purchased in 2016 & Max Life Life Gain Premier purchased in 2014. Should I continue with these plans or stop them and start investing the money in MF? How to avoid any losses if I close them?
-Rakesh
Two of your insurance policies, Kotak Premier and Max Life Gain Premier, are endowment plans while Birla Sun Life Wealth Aspire is a ULIP. Neither of them is recommended as they offer a sub-optimal combination of insurance and investment. You should surrender them, buy a term insurance (in case you have financial dependents) and opt for a few good mutual fund schemes for the remaining investable surplus.
Here is what you can expect to get upon surrendering your existing policies:
BSL Wealth Aspire: It has a 5-year lock in period. Upon surrendering now, the fund value will be transferred to the 'Discontinued Policy Fund' after deducting the discontinuance charges. You will get this money after the completion of five years.
Endowment plans: Generally, you cannot surrender them before completing 3 years. After that, you can get 30% of the total premiums paid as guaranteed surrender value. Even if you do not get anything back, it's still advisable to stop paying further premiums and let these policies lapse. You should start investing the premium amounts that you save in a few good mutual funds. Over a long-term, you will earn far better returns even after accounting for the losses on account of lapsed premiums.
Going forward, always remember to not mix your insurance and investment needs. Term insurance products are ideal for insurance cover because they have very low premiums. Besides, you should invest in diversified equity mutual funds to achieve your long-term goals which are more than five years away.
This article was originally published on September 15, 2017.
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