Should I Cancel my LIC Jeevan Anand Policy for ELSS or Invest in Mutual Funds?
Understanding the Choices:
When it comes to making financial decisions, especially with long-term insurance policies like LIC Jeevan Anand, the choice can often seem daunting. This article aims to help you understand the implications of canceling your policy and investing in other avenues such as Equity Linked Savings Schemes (ELSS) or Mutual Funds. Let's delve into the pros and cons of each option.
LIC Jeevan Anand: Periodical Tax-Free Returns vs. ELSS and Mutual Funds
LIC Jeevan Anand provides periodical tax-free returns, which can be appealing if your primary goal is to receive regular payouts that are exempt from income tax. However, this comes at the cost of lower returns compared to equity-based investments. On the other hand, equities and Mutual Funds, including ELSS, offer the potential for higher returns but with greater volatility.
Opportunity Cost Analysis
Assuming you have already paid around 60 lakhs in premiums, surrendering the policy today would likely yield a return between 40-45 lakhs. This is approximately 30 lakhs less than what you have already paid. Considering the time value of money, this difference or principal loss could be much higher if you had invested this amount in a risk-free Fixed Deposit (FD) instead. For a purely monetary perspective, continuing the policy and reinvesting the premiums in a mix of equity and debt funds could potentially lead to better returns.
LOI: Losing Out on Life Cover
It's also important to consider the life cover attached to your policy. A 3 crore life cover till age 99 could be seen as the death benefit in case anything happens to the policyholder. Closing the policy would mean losing out on this benefit, which would require you to buy a separate term life insurance policy. The costs associated with this would need to be evaluated. Additionally, you should consider your current savings and financial needs before making a decision.
Option Analysis: Exiting for Mutual Funds
While it might be tempting to exit the policy and invest in Mutual Funds, this should not be done without careful consideration. According to financial projections, if you invest Rs 1 lakh per month for 20 years in top-rated Mutual Funds, you could potentially accumulate approximately Rs 12-13 crore by the end of the term. This is a significant sum that could substantially improve your retirement savings.
Consider the Exit Fee and Policy Details
Before making any final decisions, it is crucial to read the policy's exit clause. This document will provide important information on the surrender value, taxes, and future growth potential. Consulting with a professional or an MF Investment consultant can also help ensure that you make an informed decision based on your specific financial situation.
Evaluating Your Investment Decision
Opportunity Cost: The cost of not taking the opportunity to invest in higher-return avenues. Lifetime Benefits: The long-term benefits such as the life cover and the potential growth of your insurance savings. Risk Management: The balance between safety and growth in your financial portfolio. Cash Flow: Periodical cash flows provided by the policy versus the lump sum received through mutual funds.Conclusion
The decision to cancel your LIC Jeevan Anand policy for ELSS or Mutual Funds should be made thoughtfully. While Mutual Funds can offer higher returns, they also come with the risk of not meeting your investment goals. It is essential to evaluate all aspects carefully, including the cost-benefit analysis and future financial needs. Consulting with professionals can also provide valuable insights into making the best choice for your financial well-being.
Further Learning
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