Should I surrender my current ULIP & re-invest in another one?

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Hi Fpguru,

 

 

I have taken up a ULIP policy from LIC (plan name LIC Money Plus) on 30/03/2007. The premium amount is Rs.10,000/- payable annually. The next premium is due in march 2012.At present the NAV is 10.45. I am planning to surrender this policy as it is not yielding much and want re-invest the money in another policy.Please advise me whether I should continue this policy or surrender. Thank you in advance for your help.

Regards,
Praveena

 

 

 

 

 


 


Dear Praveena,


We thank you for visiting our website & asking us a question. You have asked us a question regarding a subject for which we get a lot of queries i.e. ULIPS!

Unit Linked Insurance Plans or ULIPs have earned a very bad reputation as financial products in the last couple of years. Unfortunately this is less to do with the product itself but more to do with the way the product is marketed & sold. These are insurance products which have been marketed as investment products & then been mis-sold to the masses.

As long as stock markets were doing well, these ULIP’s were the darlings of all investors, however with markets not at their peaks, these products have also underperformed. The initial high charges have also not helped.

The reason why I’m saying this is because as per your question you plan ‘to surrender this policy as it is not yielding much and want re-invest the money in another policy’. Basically as this ULIP is not performing you want to invest in another policy. This should not be the reason for you to surrender a policy.

An insurance policy is meant to provide optimum risk cover. Period. The rest of the features like investment, fund value, guaranteed returns, tax-saving is to be seen post getting the optimum cover. You have not mentioned the Sum Assured on the policy. As we do not have all your financial details, we can’t comment on how much life insurance you require(In fact the first question is not how much but whether you require life insurance).  However if the amount is atleast 5-10 times your annual income do continue the policy.

These plans are long term plans. You have not mentioned the term of the plan but if the same is for 15-20 years you are still in the early phase of the plan. It is in this phase that the charges are highest. Four years premium is already paid with the fifth due. Assuming that investment is the main reason you bought this plan we suggest you to continue this plan. Most of the charges have been deducted & it is now that more of your premiums will be invested.

Do keep in mind we are not in any way claiming that the product you have invested in is a good or bad product. We however are giving you prudent financial advice.

An insurance plan should be surrendered when the coverage is negligible for you needs. Another reason is when the returns are poor along with low coverage. Sometimes the premiums are so high that if a person continues paying them he won’t be able save for other goals. This too can be reason for surrender.

In your case however the reason for purchasing this policy appears to be not risk cover but investment. The product invested in is a market linked product, meant for long term investment horizon. So keep a long term view on it. Also most importantly you plan to surrender this policy to purchase another one. This is a bad idea as you have already paid the initial high charges in this plan & will again pay them in the new plan you purchase. A case of jumping from the frying pan into the fire! Thus continue the policy as an investment.

Hope this solves your query!

Regards,


Fpguru.com

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