Q. I am 35 years old and have invested in one LIC Jeevan Anand life insurance policy which has an annual premium of around 16000 annually for a sum assured of 3 lakhs. The term of the policy is 20 years. I have already paid the premium for 8 years. I also have a term plan for 25 years for 50 lakhs sum assured bought eight years back. I wish to stop the existing term plan and buy a new one for Rs. 1 crore for 40 years. Should I also surrender my LIC Policy?
As a basic financial planning rule one should not mix your insurance and investment needs. Investing in a life insurance policy is injurious to your financial health. If you do so, you neither get adequate life insurance cover nor adequate returns on your investments. Insurance and investments are two different needs and needs to be met by buying different products.
For your financial protection you need to buy a term insurance plan equal to 12-15 times of your annual income. For your investment needs please invest in diversified investment products like equity, debt and gold. In case the goal is far away, you can predominantly invest in diversified equity mutual funds through SIP (Systematic Investment Plan).
Should you surrender the LIC Jeevan Anand policy?
As far as your present life insurance policy Jeevan Anand is concerned, this is a traditional endowment plan where the life cover is available for the whole life even after maturity of the plan. With the annual premium you are paying for this policy you can get a term plan for a very substantial amount. So stop paying premium for this policy and surrender it. It does not make sense for you to put good money after bad money.
Choose the right term insurance strategy
It is good that you have decided to buy a term plan for Rs. 1 crore. Please do not discontinue your existing term plan as with advancing age the premium also goes up and goes up steeply specially after 30 years of age so the premium applicable for the same amount of insurance now will be far higher than what you are presently paying for Rs. 50 lakhs existing cover.
So compare if the premium of cover for one crore is more than the premium for new cover and existing cover, buy new cover for 50 lakhs without discontinuing the existing one. Please first buy the online term plan of Rs. 1 crores and discontinue the existing online term plan of Rs. 50 lakhs only after you get the policy in your hand in case you wish to buy a term plan for one crore.
However, if there is not much difference in the premium, you can buy one crore online term plan for convenience to consolidate the insurance. Please furnish all the details honestly and correctly specially about your and your family’s health history to ensure elimination of the chance of rejection of claim on the ground of submitting incorrect information in the event of your death.
You can select any insurance company which offers a claim settlement ratio above 98% with lower premium as compared to other policies. Please buy a plain vanilla term plan. You can find out the best insurance term plan from the website of any life insurance aggregators. I am unable to understand why you want to take cover for 40 years at the age of 35 years? Are you going to be gainfully employed that long? The purpose of life insurance is income replacement so in case you do not intend to work till that age, buy life insurance till 60 years of your age which is the retirement age generally for salaried people.
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Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his X handle.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
