Shruti, like many others, finds endowment policies an inefficient way to take care of protection and investment needs. Her requirements are two fold: one, that she gets adequate insurance cover at a competitive price and two, that she is able to make better use of her funds which is currently being used to pay the premiums on her policies.
The choices Shruti has with her current policies are to let the policies lapse, surrender the policies or to make them paid up.
If she lets the policy lapse by not paying further premiums, she stands to lose at least 50% paid as premiums in the last five years. Making the policy paid-up would imply that the cover will continue for a reduced sum assured over the rest of the term. While Shruti will not need to pay any further premiums, the proportionate sum assured will be received only on the maturity of the policy. This can imply an opportunity cost since the funds will remain blocked and will earn low returns instead of being deployed in a better investment product.
Surrendering a policy would mean that a portion of the premium already paid will be refunded to Shruti. Since Shruti’s policies have been in force for some time, they would now have a decent surrender value which can be immediately invested by her in products of her choice, with a higher return potential. She should also start a periodic investment program with the money she saves on the premiums, so that she does not end up spending this amount. Taken together, the same outlay will now give Shruti a good insurance cover as well as investments.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
