Personal Finance

Insurance Uncovered

Rajalakshmi Nirmal | Updated on April 28, 2019 Published on April 28, 2019

I am a 64-year-old self-employed lady. I had purchased (LIC’s) Jeevan Anand policy in 2011 with an SA (sum assured) of ₹5 lakh.

The annual premium is around ₹34,000.

After going through many articles on traditional life insurance policies and the universal fact that such policies have a very poor rate of return and that at this age I need no protection, I have not paid the premium for the last one year.

My son and husband are duly insured and we have no (financial) liabilities.

Kindly advise whether I should surrender the policy and invest the surrender value in some mutual fund scheme, or let it attain the paid-up status and wait for its maturity in 2032.

Meenakshi Gaur

Given that you have no personal liabilities and no dependants, it is suggested that you stop paying further premiums.

At your age, what is important is health insurance. If you do not have one, we suggest you buy a comprehensive health plan covering yourself and your husband.

Jeevan Anand can be converted into a paid-up policy three years from purchase. As you invested in the policy in 2011, you can now write to the insurer requesting to convert it to a paid-up one. When the policy becomes paid-up, you need not pay further premiums; on maturity, that is, in 2032, you will get the promised paid-up value.

But note that the policy terminates when the paid-up value is paid, and there will be no risk cover, which you would have otherwise have enjoyed for lifetime (Jeevan Anand is a whole life policy).

The paid-up value will be calculated as SA multiplied by the number of premiums you have paid, divided by the total number of premiums you ought to have paid — ₹5,00,000*7/21 — which comes to about ₹1,66,667, plus the accrued bonus on the policy.

It is not a good idea to surrender the policy.

The guaranteed surrender value the company will pay you is 30 per cent of the basic premiums paid, excluding the first year’s premium.

This will work out to about ₹61,000. LIC may, in addition, pay what is called a ‘Special Surrender Value’, which is either equal to or more than the Guaranteed Surrender Value. But either way, the benefit you will receive by surrendering the policy is not going to be material.

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