Changing Your 25-Year LIC Money-Back Policy to a 20-Year Plan: Advantages and Disadvantages
Life Insurance Corporation (LIC) policies are often tailored to meet the specific needs and preferences of policyholders. In some cases, a 25-year money-back policy may not align with a policyholder's current financial or life goals. One option is to change from a 25-year LIC policy to a 20-year money-back plan. However, it's important to understand the process and the potential implications. This article will guide you through the steps and highlight the advantages and disadvantages of this change.
Procedure for Policy Conversion
While it's possible to change a 25-year money-back policy to a shorter term, such as a 20-year plan, it's crucial to follow the prescribed procedures. Policyholders must submit a letter to LIC along with a photocopy of their ID. This application should clearly state the intention to convert the policy.
Upon conversion, the premium amount for the 20-year policy is higher than that of the 25-year policy. This means you will need to pay additional premiums for the remaining duration of the 20-year term. For instance, a sum assured of Rs. 100,000 policy would have an annual premium of approximately Rs. 5,000 for a 25-year term and about Rs. 6,600 for a 20-year term.
Financial Implications
The difference in premium amounts—Rs. 1,600 in this case—must be paid up to the date of conversion, and interest will be charged if paid late. This additional cost is not a minor one, and you should consider it carefully before making the decision to convert.
Moreover, the Survival Benefit amount differs between the 25-year and 20-year plans. In the 25-year policy, the survival benefit is Rs. 15,000, whereas in the 20-year policy, it is Rs. 20,000. The difference in these benefits needs to be adjusted by LIC, further impacting your financial situation.
Considerations and Recommendations
Despite the financial considerations, it's important to evaluate other factors before making a decision. For instance, if you are looking to reduce the term of your policy, you will only be able to do so after one year of the policy has lapsed.
Furthermore, changing your policy mid-term is generally not advisable. Policyholders often find that while bonus rates are higher in the 821-plan, the final additional bonus can be significantly higher compared to the 820-plan. Therefore, if used wisely, the 820-plan remains a viable option.
Alternatives to Policy Conversion
If you find the concept of policy conversion daunting or unsuitable, there are other viable solutions. One such option is to take a loan against your LIC policy. This provides a quick financial solution without the need to change your policy term.
Policyholders can also opt to cancel the policy or allow it to lapse, though this option may not be feasible for everyone due to the associated penalties and lack of benefits.
Conclusion
In conclusion, while it is possible to change a 25-year money-back policy to a 20-year plan, it is a decision that should not be taken lightly. The process involves additional premiums, interest charges, and adjustments in survival benefits. It's advisable to consult with a financial advisor to ensure that this change aligns with your broader financial goals and objectives.