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Ramalingam Kalirajan |11462 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Sep 22, 2025

Ramalingam Kalirajan has over 26 years of experience in MF distribution and wealth management. He holds an MBA in Finance from the University of Madras and is a CFP (Certified Financial Planner) credentialed professional. He is the Director of Holistic Investment, a Chennai-based AMFI-registered Mutual Fund Distribution (ARN-4188) and APMI-registered PMS Distribution firm (APRN07386), helping clients build long-term wealth through mutual funds and other investment solutions.... more

Question by Visu on Sep 22, 2025Hindi

I am 61, self dependent and self disciplined in a minimalist life style. I have stopped paying insurance premiums on traditional plan instead investing the premium amount in mutual fund (nearest to thousands), and kept it as paid up instead of surrender, because, the surrender value is far less getting more losses. Did my decision is correct or should I surrender the lic policy Even at loss. Investing premium after suspending the lic payment only for next 5 to 8 years. I have term plan, and health insurance as per human life value calculator Please guide me should I surrender or continue as paid up policy

Ans: Your self-driven approach and minimalistic lifestyle are truly inspiring. Stopping traditional plan premiums and choosing to invest in mutual funds is a strong, thoughtful move.

» Understanding the Paid-Up Policy Option
– Converting to paid-up means you keep the policy with reduced benefits.
– No more premiums need to be paid once made paid-up.
– Insurance coverage continues but is much lower than the original cover.
– Paid-up value pays after maturity or on death, along with bonus added till last active premium.
– No fresh bonuses will accrue after paid-up status.
– This choice gives some life cover and future payout without more payments.

» Surrendering the Policy: What to Expect
– Surrender gives you some money now, but it is less than premiums paid.
– Surrender value often is just 30-60% of total premiums paid, sometimes even less.
– All policy benefits, bonuses, and protection stop after surrender.
– Once surrendered, you get no death cover or maturity benefit at all.
– Money you get on surrender can be invested right away for growth.
– If surrender value is extremely low, loss can feel unfair and disappointing.

» Key Differences: Paid-Up vs Surrender
– Paid-up means waiting till maturity or death for payout, but coverage remains.
– Surrender means immediate cash, but you lose all policy benefits.
– Reduced paid-up is less payout but at least you do not exit with huge loss.
– Some policies let you wait for higher value at maturity than what you’d get from surrender.
– No more bonuses after going paid-up, but you retain whatever bonus is already attached.

» Evaluating Your Personal Situation
– At 61, term plan and health insurance are already in place, which protects dependents.
– You are self-sufficient and do not depend on the old plan benefits.
– If no urgent financial emergency, immediate cash from surrender may not be vital.
– If you can invest on your own, mutual fund SIPs offer better growth than leaving money in many LIC traditional plans.

» Why Not Surrender in Your Case
– Paid-up is a practical choice if surrender value is too low.
– You avoid booking a big loss by keeping it paid-up.
– For many policies, paid-up value at maturity is greater than what immediate surrender gives.
– Your decision to stop premiums and keep as paid-up is usually the most loss-minimising route.

» When Surrender Might Be Better
– If surrender value is close or equal to current paid-up value.
– If you urgently need liquidity now for a better investment or emergency.
– If growth from mutual funds would strongly outpace what a tiny maturity benefit would deliver years later.
– If policy is many years from maturity and the death cover is not required, sometimes surrender makes sense.

» Insights from Similar Cases
– Most traditional LIC plans penalise early exits, giving poor value if surrendered soon.
– Many people keep paid-up to avoid emotional loss and keep at least some benefit alive.
– Those who can utilise surrender amount for very high return growth might opt to surrender, but that is rare at your stage.

» Emotional Impact and Practical Factors
– Keeping the paid-up relieves premium payment stress.
– Seeing the policy remain may reduce emotional loss from ending it completely.
– Emotionally, keeping some link gives peace till maturity, especially for long-held policies.

» Combining with Mutual Fund Strategy
– Continue investing premiums previously paid to LIC in mutual funds.
– For next 5 to 8 years, mutual funds can help grow wealth much faster.
– Paid-up policy remains as a backup and bonus for the end of tenure.

» Tax Considerations and Timing
– Surrender may trigger a tax liability on profits if surrender value is more than premiums paid.
– Paid-up policy is usually tax-neutral till maturity, and benefits paid on maturity are often tax-free, based on Section 10(10D) rules (check your document or with a tax expert).

» Final Insights
– Your move to keep policy as paid-up and start investing in mutual funds is smart.
– Unless you must access money quickly, do not surrender at deep loss.
– If you do not need death cover, surrender can be checked only if value matches or has minimal gap with paid-up.
– Otherwise, let the policy quietly run its course.
– Use mutual funds to fill up any insurance or growth gap from now onward.
– Maintain your disciplined investment with hope and patience.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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