Have a life insurance policy that does not suit your need? How to find out and get rid of bad insurance covers
life insurance: safeguarding the family’s financial future if the breadwinner dies. However, there are plenty of wrong reasons to do the same. Topping the list is the need to save tax.
The assured returns and enormous maturity amount also look tempting. Your parents may be pushing you to buy one. Or maybe the seller is a friend or relative who can’t be refused.
Whatever be the reason, millions of Indians are holding life insurance policies that don’t suit their needs.
Meet Mitesh Sinha (see picture), who bought an insurance policy on the advice of a friend two years ago. “I was looking for a plan that would give me guaranteed income in retirement,” he says. He is pouring Rs.85,000 a month into the plan, and will get Rs.1.7 lakh a month after 12 years.
The catch: the guaranteed income will only be for 10 years. The return on the investment is less than 6%.
Mitesh Sinha
52 years, New Delhi
His broker friend advised him to buy a guaranteed return insurance policy two years ago. He will pay Rs.85,000 a month for 10 years. From the 13th year onwards, he will get Rs.1.7 lakh a month for the next 10 years. The policy also offers him a life cover of Rs.1 crore.
Why he should surrender...
The IRR of the policy is less than 6%. He has paid premiums for two years, so the policy now has a surrender value. He can get back around Rs.6.12 lakh out of the Rs.20.4 lakh he has paid in the past two years. If the surrender value and future premiums are invested in an option that earns 7.5%, he will be able to build a bigger corpus.
Why he won’t...
The very thought of losing Rs.14.28 lakh in surrender charges is unacceptable to this risk-averse investor. Besides, he doesn’t want to sour relations with his broker friend. Also, though he
