Should You Convert or Surrender Your LIC Jeevan Anand 149 Policy to Mutual Funds?

When you commit to a traditional life insurance policy like the LIC Jeevan Anand 149, it's important to understand the options available if you're considering exiting the policy and investing elsewhere. This article explores the key differences between converting to a paid-up plan and surrendering the policy, focusing on the pros and cons of each.

Why Traditional Life Insurance Policies May Not Be the Best Fit

Traditional life insurance policies, such as the LIC Jeevan Anand 149, often fall short in terms of providing adequate life cover and returns compared to bank fixed deposits. This is especially true in today's financial landscape where the need for strong returns is increasingly essential.

Exit Strategies: Converting or Surrendering

Depending on the period of holding and the terms of your policy, you have two primary options: converting the policy to a 'paid-up' plan or surrendering it. Each option has its unique considerations and is more appropriate under different circumstances.

1. Paid-up Plan

What is it?

A 'paid-up' plan allows the policyholder to stop paying premiums without forfeiting the policy. The insured will continue to have reduced insurance coverage and earn some returns.

How does it work?

Your insurance plan automatically becomes a paid-up policy when you cease paying premiums. This usually happens after you have paid premiums for at least three years. Here's how the process works:

The sum assured will reduce. Bonuses and guaranteed additions may no longer accrue. The term 'paid-up value' is calculated using a specific formula: Paid-up value Original sum assured X No. of premiums paid / No. of premiums payable

Example: Suppose you buy a policy with a sum assured of Rs 10 lakh for 20 years, with a premium of Rs 30,000 per annum, and you cease paying premiums after eight years. You could get Rs 4 lakh on policy maturity.

What to look out for

Always review the fine print in your policy document to understand exactly how the paid-up value is calculated. Some insurance companies may use a modified formula to provide a higher sum based on certain components of the bonus. Thus, the above formula is a useful guide.

2. Surrendering the Policy

What is a surrender value?

Surrendering the policy means the insurer will terminate the contract immediately and provide a percentage of the premiums you have paid. The amount varies based on the insurer, the number of premiums paid, and the insurer's formula for calculating the surrender value.

When might this be a wise choice?

Surrendering your policy should be considered if you want to exit the insurance plan within three to four years. The reasoning behind this is the substantial time you still have ahead, allowing you to use the saved premiums to invest in other areas.

Option to invest in term plans or equity mutual funds. Potential for higher returns and more adequate life insurance cover.

When to Stay in a Paid-up Plan

If you do not want to pay premiums but still wish to keep the policy active, a paid-up plan may offer a better solution. Additionally, if you prefer not to exit the policy at a potential loss and your policy is nearing maturity, a paid-up plan might be more suitable.

Conclusion

There is no one-size-fits-all approach when it comes to deciding whether to convert or surrender your policy. It's essential to evaluate your specific circumstances thoroughly before making a decision. Speak to your life insurance company to obtain the surrender and paid-up values. Providing a record of this correspondence via email can also be beneficial.

Next Steps

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