Should I surrender my high-premium endowment policy?

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Pure term insurance versus an endowment policy. Most of us prefer the latter as it comes with a maturity amount unlike former that gives you nothing if you survive the policy period. However, premium on endowment policies is huge. Most people buy it at the initial year of their career as it helps in taking tax deduction under section 80-C. But when you discover other 80-C benefits, doubts arise if you should continue with your high-premium endowment policy. We approached Shreyans Vijay, Head of Insurance, Fisdom to address the following query on Money9 Helpline:

My uncle is an LIC agent, I bought an endowment plan from him 5 years ago with a premium payment term of 15 years just to save Tax under Sec 80C. Now, my EPF contribution surpasses my 80C saving. I am not sure if I should continue with the policy or not, my annual premium is Rs 1,02,225. What are the consequences if I surrender the policy?

– Jagroshan Singh, New Delhi

Response by Shreyans Vijay, Head of Insurance, Fisdom

Endowment policies are long term commitments. Therefore, the product is structured expecting that the customer will continue paying the premium through the entire term of the policy. If you surrender the policy now, you will probably get a surrender value of only 30%-40% of the total premium paid so far.

On Surrendering:

1. You will lose the life cover associated with the policy immediately.

2. The policy can not be revived in future

3. The surrender value is paid to the policyholder

If you need the money immediately:

Please check if there is an option of money withdrawal, and if yes, you can partially withdraw some capital after a fixed time period. Otherwise, you can also avail a loan facility on this policy.

If you don’t need the money immediately:

1. If the return/yield of this product is good, then you should continue to stay invested and keep paying all future premiums. Like all other life insurance products, the maturity value of this policy will also be tax free.

2. If you don’t need the money immediately, you can have the policy converted to a paid-up policy. As this policy has been in continuation for 5 years, this would be eligible for getting converted into a paid-up policy. In that case a reduced maturity value will be paid either on the maturity of the policy or at the death of the policyholder. Typically, paid up maturity value is more than the surrender value.

Still if you choose to surrender the policy, then the below documents will be required:

• Original Policy bond – the original copy

• Printout of LIC policy surrender form No.5074

• Policyholder will be required to utilise the LIC NEFT form

• Proof of identification

• Cancelled cheque