Why you should surrender endowment life insurance policies
Surrendering a policy would mean that a portion of the premium already paid will be refunded to you. If the policy has been in force for some time, you would get a good surrender value which can be immediately invested in products of your choice.
Ashwini’s requirements are two-fold: one is to get adequate insurance cover at a competitive price and two, being able to make better use of her funds which she is currently using to pay the premiums. The choices Ashwini has with her current policies are to let the policies lapse, surrender them or to make them paid up. If she lets the policies lapse by not paying further premiums, she will lose whatever she has paid as premium in the past seven 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 Ashwini 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 earn low returns. The same amount if deployed in a better investment product can earn better returns.
Surrendering a policy would mean that a portion of the premium already paid will be refunded to Ashwini. Since Ashwini’s policies have been in force for some time, they would now have a good surrender value which can be immediately invested in products of her choice. She should also start a periodic investment programme on the money she saves on the premiums, so that she does not end up spending this amount. Taken together, the same outlay will give Ashwini 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.)