I have a money back policy that I bought two years back. I find that I am not properly covered for insurance and invest in real estate and stocks for my investment needs. I am unhappy with this policy. Should I surrender it? What do I get back? What should I buy instead?
T R Krishna, Chennai
Mr. Krishna surrendering your plan would definitely cause a financial loss to you. What you will get back will depend upon the exact plan you have my estimate would be after paying three premiums you will get back approximately 60 per cent of the premiums paid.
Before you take the decision to surrender, work with a good financial planner as to how much insurance you actually need to provide protection to your family and how much money can you set aside for investment and insurance. After doing this analysis, if you feel that the money back plan is preventing you from either being able to take adequate protection for your self or save for your main needs, then surrender would be the right option.
As you would know the returns that you get on an investment depend upon the risk you are willing to take and the period of investment. A money back plan is a very conservative plan giving very low returns, but if you are well-off and leave money in your saving account, then the money back plan, even with it’s low returns, should end up giving you a better return than that. Also some money back plans from LIC offer guaranteed returns of 4 per cent to 5 per cent over a 15 year period or so, which are great returns for a very conservative investment in the given interest rate scenario.
So my final suggestion would be to study that plan you have bought based on the parameters above, if you can afford to leave money in it, then study the exact plan you have taken get an illustration from the company on a 5 per cent returns scenario and see whether the plan in question makes sense. My suggestion would be that if you can afford it and it beats the saving bank account interest, then unless you have committed a large amount to it, keep the plan.
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