34-Year-Old With 85k Monthly Income Asks: Surrender LIC Policies to Clear Home Loan?

Hello Sir, I am 34 years old with a kid 4 years and a wife. I earn roughly 85k monthly. I have a home loan of 7.2Lakhs with emi of 31k and 9.15% rate. I have 3.7L in pf and my dad had gifted me three lic policies(with a premium paying period of 35 yrs) as below Two Lic jeevan anand 149 started on 2013 One lic jeevan saral 165 started on 2009 Should I surrender my Lic policies to clear my home loan? If I surrender jeevan saral 165 I get 7Lakhs(I am getting more than I paid in premiums) If I surrender jeevan anand 149 I get 1Lakhs(50k loss on premium paid) Or should I keep paying for these policies and continue the home loan emi for 2yrs? I plan to buy another house in future. Please advise.

Ans: You are thinking in the right direction.

It is good that you are evaluating long-term LIC policies seriously. Most people delay it.

Let us now assess your situation in a structured and complete manner.

Your Current Situation
Age: 34 years

Family: Wife and one child (4 years)

Income: Rs 85,000 per month

Home Loan: Rs 7.2 lakh with Rs 31,000 EMI at 9.15% interest

Provident Fund: Rs 3.7 lakh

LIC Policies:

Two traditional endowment plans from 2013 (35-year term)

One traditional money-back plan from 2009

Jeevan Saral gives Rs 7 lakh surrender value (profit)

Jeevan Anand gives Rs 1 lakh surrender value (loss of Rs 50,000)

Let Us Look At Your LIC Policies First
Why LIC Policies Are Not Wealth Creators
These are low-yield, long-term insurance plans.

They give average returns of 4% to 5% annually.

This return is lower than inflation over 20 to 30 years.

Your premium paying term is 35 years — very long duration.

You get maturity at 60 to 70 years — very late for life planning.

These plans offer poor wealth accumulation and flexibility.

The surrender charges in early years are high.

They lock your money without decent compounding.

Even the loyalty additions at maturity are not attractive.

Should You Continue or Surrender?
Let us look at each policy carefully.

Policy 1: Jeevan Saral 165 (Started in 2009)
Surrender value is Rs 7 lakh

You have already earned more than what you paid

You are exiting with profit

There is no reason to keep this low-return policy

You have held it for 15+ years — enough duration already

No future compounding benefit is expected

Take the Rs 7 lakh and use it productively

Policy 2 and 3: Jeevan Anand 149 (Started in 2013)
Only Rs 1 lakh surrender value

Rs 50,000 loss on premium paid

You have held it for 11+ years already

Still 24 years of premium left

Future surrender value may still not justify returns

Loss of Rs 50,000 is painful, but continuing is worse

The value erosion will be higher over time

You are tying your money for 35 years for poor returns

Take the small loss now and invest better

What Should You Do With the Surrender Amount?
Now let us create a 360-degree plan for the Rs 7 lakh and Rs 1 lakh.

1. First, Close the Home Loan
Outstanding principal is Rs 7.2 lakh

Home loan EMI is Rs 31,000

Interest rate is high — 9.15%

Clearing this loan will give instant mental relief

It improves monthly cash flow by Rs 31,000

Use the Rs 7 lakh from Jeevan Saral to close most of the loan

You can arrange the balance Rs 20,000 from savings or PF

This clears your loan fully and frees up EMI burden

2. Stop Paying Premiums on LIC Policies
Surrender the two Jeevan Anand policies now

You get Rs 1 lakh total

Use this amount to build emergency corpus

This gives you financial cushion for 6 months expenses

You avoid any more losses in the future

What Happens When You Free Up Rs 31,000 EMI?
Your monthly savings increase by Rs 31,000

This is a huge jump in cash surplus

You can create a strong wealth building system now

Smart Allocation Of The Surplus
Let us divide this Rs 31,000 wisely:

1. Rs 10,000 — Invest in Child Future
Create a mutual fund SIP in your child’s name

Choose child-focused equity mutual fund via regular plan

Invest through a Mutual Fund Distributor who is also a Certified Financial Planner

Regular plan has guidance, monitoring, and discipline support

Avoid direct plan — it lacks personalisation and emotional anchoring

Avoid index funds — they lack flexibility, give average returns, and don't beat market

This Rs 10,000 monthly will build a good education corpus in 15 years

2. Rs 10,000 — Retirement SIP For You and Wife
Start a diversified equity SIP in your name

Also start Rs 5,000 SIP in wife’s name if she is not earning

Keep this SIP for at least 20 years

This will give you good retirement support

Retirement is your biggest financial goal

3. Rs 5,000 — Emergency Fund & Insurance
Add Rs 1 lakh from surrender value to savings

Add Rs 5,000 every month till you reach 6 months’ expenses

This is your family’s safety net

Also review your health insurance

Ensure you have minimum Rs 5 lakh family floater cover

Buy term life insurance of Rs 50 lakh to Rs 1 crore

This gives full protection to your family

4. Rs 6,000 — Home Planning Fund
You mentioned buying another house in future

Start a SIP in a balanced hybrid mutual fund for this

Invest Rs 6,000 per month in this fund

Use this for down payment after 5 to 7 years

What About Your Provident Fund?
You already have Rs 3.7 lakh in PF

Let it continue for retirement

Don’t withdraw unless it is urgent

PF is good for long-term safety

Should You Still Consider Buying Another House?
Do not rush to buy second home

First focus on becoming debt free and financially secure

Buying another house creates EMI pressure again

Rental yield is very low in India

Property value grows slowly in most locations

Instead, build a strong mutual fund portfolio

It is liquid, transparent, and better compounding

Final Insights
Surrender LIC policies and close your home loan

Free up EMI and use it for smart investment

Protect your family with insurance

Build education, retirement and home funds step-by-step

Mutual funds give better long-term growth than LIC or real estate

Use regular plans with CFP-led guidance

Track and review yearly with your MFD-turned-CFP

Keep focus on long-term goals — child, retirement, wealth

Make money work for you, not sit idle in poor plans

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Ans: At 39, you’re at a critical juncture in life where strategic financial planning is essential for securing your family's future. Your current income of Rs 2.4 lakhs per month, SIP investments, and commitment to savings through PPF reflect a disciplined approach. However, balancing your financial commitments, such as the joint home loan and your son’s education, with future goals like retirement requires careful planning.

Assessing Your Insurance Policies
Your 25 LIC policies, maturing from 2036 onwards, with a total sum assured of Rs 25 lakhs, have served as a significant portion of your insurance portfolio. However, with your current financial obligations and future goals in mind, it’s essential to reassess whether these policies align with your long-term objectives.

Considerations for Continuing LIC Policies:

Insurance Cover: Evaluate whether the Rs 25 lakhs sum assured is sufficient. Generally, life insurance should cover 10-15 times your annual income. In your case, this would be significantly higher than Rs 25 lakhs.

Policy Maturity: The policies mature over a long period, which may not provide liquidity when you need it most, such as during your son’s education or major life events.

Returns on Investment: LIC policies often offer lower returns compared to other investment options like mutual funds. The premiums could potentially yield better returns if redirected.

Option to Surrender:

Reallocation: If you choose to surrender, the funds could be redirected to more growth-oriented investments, providing higher returns and better alignment with your financial goals.

Impact: Understand the surrender value and any associated penalties. Weigh this against the potential returns from reallocating those funds.

Managing Your Home Loan and Property Sale
Your joint home loan with an EMI of Rs 1.32 lakhs is a significant financial burden, especially with your monthly expenses at Rs 40,000. Considering selling your flat for Rs 1.2 crores to pay off the home loan is a viable option but requires careful tax planning.

Long-Term Capital Gains (LTCG) Tax:

Tax Implication: If you sell the flat, LTCG tax will apply on the sale proceeds minus the indexed cost of acquisition. The current LTCG tax rate is 20% with indexation benefits.

Exemptions: To save on LTCG tax, you can invest the gains in another residential property under Section 54 or in specified bonds under Section 54EC.

Loan Repayment: Use the sale proceeds to clear the joint home loan. This reduces your financial burden, freeing up your income for other essential investments.

Evaluating the Sale:

Loan Repayment: Clearing the home loan reduces your EMI obligation, which currently consumes more than half of your monthly income.

Alternative Investments: Consider reallocating the remaining proceeds to a mix of liquid and growth-oriented investments. This could enhance your financial stability and ensure funds are available for future needs.

Strategic Investment Planning
Your current investment of Rs 18,000 per month in SIPs and Rs 5,000 per month in PPF is a good start. However, with the home loan and your son’s education expenses, it’s essential to optimize your investments for better returns.

Re-evaluating SIPs:

Diversification: Ensure that your SIP investments are diversified across different asset classes such as equity, debt, and hybrid funds to balance risk and reward.

Regular Funds: Investing through regular funds with the guidance of a Certified Financial Planner (CFP) ensures that your portfolio is well-managed, aligning with your goals.

Reallocation from LIC: If you decide to surrender your LIC policies, consider directing those funds into your SIPs. This could significantly enhance the growth potential of your investments.

PPF Contributions:

Tax Efficiency: PPF offers tax benefits under Section 80C and is a safe, long-term investment. However, the lock-in period and lower returns compared to equities might not align with your need for higher growth.

Balancing Contributions: You may want to balance contributions between PPF and equity-oriented SIPs to achieve a mix of safety and growth.

Planning for Your Son’s Education
With a 5-year-old son, you anticipate education costs of around Rs 3 lakhs per year. Education expenses will likely rise, so planning for them is crucial.

Education Fund:

Dedicated SIP: Consider setting up a dedicated SIP for your son’s education, targeting growth-oriented funds that can outpace inflation.

Child Plan: Explore child-specific investment plans that provide a mix of insurance and investment benefits, ensuring that education expenses are covered even in your absence.

Systematic Withdrawal Plan (SWP): As your son approaches college age, an SWP could provide a steady stream of income, covering his education expenses.

Retirement Planning
Retirement planning should be a priority, especially given your current financial commitments. You’ll need a substantial corpus to maintain your lifestyle post-retirement.

Corpus Estimation:

Target Corpus: Estimate your retirement corpus based on your desired retirement age, current lifestyle, and inflation. Given your current income and expenses, a target of Rs 5-7 crores might be realistic.

Investment Strategy: Allocate a portion of your income to retirement-focused investments, such as diversified equity funds. The power of compounding will help you accumulate the necessary corpus over the next 15-20 years.

EPF and PPF: Continue contributing to EPF and PPF as they provide a stable and tax-efficient foundation for your retirement corpus.

Reviewing Insurance Needs:

Term Insurance: Ensure that you have adequate term insurance coverage, which is more cost-effective than traditional policies like LIC.

Health Insurance: With age, medical expenses tend to increase. Consider enhancing your health insurance coverage to protect against unforeseen medical costs in retirement.

Tax Planning and Optimization
Efficient tax planning can help you retain more of your earnings and grow your wealth faster.

Maximizing Deductions:

Section 80C: You’re already maximizing this with PPF, LIC premiums, and home loan principal repayment. Consider other avenues like ELSS for additional tax benefits.

Section 80D: Ensure you claim deductions for health insurance premiums. This not only reduces tax liability but also secures your family’s health needs.

Capital Gains and Tax Efficiency:

Property Sale: As discussed, reinvest LTCG from the property sale into specified instruments to reduce tax liability.

Tax Harvesting: If you hold equities or equity mutual funds, consider tax harvesting strategies to minimize LTCG taxes.

Emergency Fund and Contingency Planning
An emergency fund is essential, especially with your current financial commitments.

Building a Safety Net:

Liquid Fund: Set aside at least 6 months’ worth of expenses in a liquid fund. This ensures you’re covered in case of job loss or other emergencies.

Flexibility: Ensure that this fund is easily accessible and not locked into long-term investments.

Debt Management:

Prioritizing Debt: Consider prioritizing high-interest debt, such as any personal loans or credit card balances, before focusing on long-term investments.
Final Insights
Your financial situation is complex, but with strategic planning, you can manage your current obligations while building a secure future. Focus on reassessing your LIC policies, optimizing your investment strategy, and planning for major life goals like your son’s education and retirement.

Reducing your home loan burden through the sale of your flat and efficient tax planning can further enhance your financial stability. Ensuring that you have adequate insurance coverage and a robust emergency fund will protect you against unforeseen events.

Finally, with disciplined investing and strategic reallocation of funds, you can achieve your long-term financial goals and secure a comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You have explained your income, goals, current assets, and future plans with great clarity. Your early planning spirit is strong. This gives a very good base. You can reach a peaceful retirement with smart steps in the next few years.

» Your Current Position

You are 40 years old. You plan to retire in 3 to 5 years. You earn Rs 2.3 lakh per month. Your wife also works but will stop working soon. You have one daughter aged 10. Your current monthly cost is around Rs 1.1 lakh. This cost will reduce after retirement because you will shift to your parental flat.

Your investment base is already good. You have saved in bonds, stocks, mutual funds, PPF, FD, and SIP. Your wife also has her own savings and rental income from a flat. All these create a good starting point.

This early base helps you plan stronger. It also gives room for more shaping. You are on the right road.

» Your Family Goals

You need Rs 75 lakh for your daughter’s higher education and marriage.

You want Rs 75,000 per month for family living after retirement.

You want to retire in 3 to 5 years.

You will shift to your parental flat after retirement.

You will have rental income of Rs 10,000 from your wife’s flat.

These goals are clear. They give direction. They allow a strong plan.

» Your Present Investments

Your investments include:

Rs 50 lakh in REC bonds maturing in 2029.

Rs 42 lakh in stocks.

Rs 17 lakh in mutual funds.

Rs 16 lakh in fixed deposits.

Rs 15 lakh in PPF.

Rs 1.3 lakh as monthly SIP.

Your wife holds:

Rs 30 lakh corpus.

A flat worth Rs 40 lakh with rent of Rs 10,000 each month.

Your combined net worth is healthy. This gives good power to build your retirement fund in the coming years.

» Understanding Your Expense Need After Retirement

You expect Rs 75,000 per month after retirement. This includes all basic needs. You will not have rent. That reduces cost. This assumption looks fair today.

Your cost will rise with inflation. So you must plan for rising needs. A strong retirement corpus must support rising cost for 40 to 45 years because you are retiring early.

An early retirement needs a large buffer. So you need safety along with growth. Your plan must include growth assets and safety assets.

» How Much Monthly Income You Will Need Later

Rs 75,000 per month is Rs 9 lakh per year. In future years, this cost can rise. If we assume steady rise, your future cost will be much higher.

So the retirement corpus must be designed to:

Give monthly income.

Beat inflation.

Support you for 40 to 45 years.

Protect your family even in market down cycles.

Allow flexibility if your needs change.

A strong retirement fund must support both safety and long-term growth.

» How Much Corpus You Should Target

A safe target is a large and flexible corpus that can support long years without running out of money. For early retirement, the usual thumb rule suggests a very high number. This is because you need income for many decades.

You need a corpus big enough to produce rising income. You also need a cushion for unexpected health costs, lifestyle shocks, and inflation changes.

Your target retirement corpus should be in a strong range. For your needs of Rs 75,000 per month and for goals like daughter’s education and marriage, you should aim for a combined retirement readiness corpus in the higher bracket.

A safe range for your family would be a very large number crossing multiple crores. This large range gives you:

Income safety.

Inflation protection.

Peace during market cycles.

Comfort in long life.

Room for daughter’s future.

Strong backup for health.

You are already on the way due to your existing assets. You will reach close to this range with systematic building over the next 3 to 5 years.

» Why You Need This Larger Corpus

You will retire early. That means more years of living from your corpus. Your corpus must not fall early. It must grow even after retirement. It must give monthly income and long-term family protection.

This is only possible when the corpus is strong and well-structured. A weak corpus creates stress. A strong corpus creates freedom.

Also, your daughter’s future cost must be kept aside. This must be parked in a separate fund. This must not touch your retirement money.

A strong corpus makes these two worlds separate and safe.

» Your Existing Assets and Their Strength

You already have good diversification:

Bonds give safety.

Stocks give growth.

Mutual funds give managed growth.

FD gives stability.

PPF gives tax-free long-term savings.

This blend is already a good start. But you need to make the blend more structured for early retirement.

Your Rs 1.3 lakh monthly SIP is also strong. It builds your future fast. You should continue.

Your wife’s rental income is small but steady. This adds strength.

Your combined financial base can reach your retirement target if you refine your allocation now.

» Your Daughter’s Future Fund Need

You need Rs 75 lakh for your daughter’s education and marriage. You should keep this goal separate from your retirement goal.

Your current SIP and future allocations should create a dedicated fund for this goal. A long-term fund can grow well when managed actively.

Do not mix this fund with your retirement needs. Mixing leads to shortage in old age. Always keep this corpus ring-fenced.

» A Strong Asset Mix For Your Retirement Path

A balanced mix is needed. You need growth assets to beat inflation. You also need stable assets for income.

You must avoid index funds because they do not give flexibility. Index funds follow a fixed index. They cannot make active changes in different markets. They cannot move to better stocks when markets change. They force you to stay in weak sectors for long. They also do not help you in down cycles because they cannot protect you by shifting to safer options. This can hurt retirement planning.

Actively managed funds are better because:

They give active asset selection.

They give scope for better returns.

They give flexibility to change sectors.

They give downside management.

They give access to a skilled fund manager.

They support long-term planning more safely.

Direct plans also carry risk. Direct plans do not give guidance. They do not give behavioural support. They do not give market timing help. They do not give portfolio shaping. They leave all the judgement to you. One mistake can cost years of wealth.

Regular plans with guidance from a Certified Financial Planner help you shape decisions. They help you remain disciplined. They help you avoid panic. They help you decide allocation changes at the right time. This saves wealth in long-term.

» How Your Investment Journey Should Grow in the Next 3–5 Years

Continue your SIP.

Increase SIP when your income rises.

Shift part of your stock holding into planned long-term mutual funds to reduce concentration risk.

Build a defined daughter’s education fund.

Keep a part of your REC bond maturity amount for long-term.

Avoid locking too much into fixed deposits for long periods.

Build a safety fund for one year of expenses.

This will create a full structure.

» Your Rental Income Role

Your rental income of Rs 10,000 per month is small but steady. Over time it will rise. This income will support your monthly cash flow after retirement.

You can use this for utilities or health insurance premiums. This gives a cushion.

» Your Emergency Buffer

You should keep at least one year of essential cost in a safe place. This can be in a liquid account or short-term fund. This protects you in shocks.

Since you plan early retirement, a strong buffer is important. It gives peace even in low months.

» A Structured Retirement Approach

A complete retirement plan for you should include:

A clear monthly income plan after retirement.

A corpus that can grow and protect.

A rising income system that matches inflation.

A separate daughter’s future fund.

A health cover plan for your family.

A tax-efficient withdrawal plan.

A market cycle plan to protect you in tough times.

This holistic approach keeps your family strong for decades.

» What You Should Build by Retirement Year

Your aim should be to reach a strong multi-crore range in investments before retirement. You already hold a large amount. You will add more in the next 3 to 5 years through SIP, stock growth, bond maturity, and disciplined saving.

Once you reach your target range, you can start the shifting process:

Move a part to stable assets.

Keep a part in long-term growth assets.

Create a monthly income strategy.

Keep a reserve bucket.

Keep a child future bucket.

Keep a long-term growth bucket.

This structure protects you in all market conditions.

» Final Insights

Your financial journey is already strong. You have a good income. You have saved well. You have multiple asset types. You have a clear timeline. And you have clear goals. This foundation is solid.

In the next 3 to 5 years, your focus should be on growing your combined corpus to a strong multi-crore range, keeping a separate fund for your daughter, reducing risk in unplanned assets, and building a stable long-term structure.

With the present path and a disciplined structure, you can retire peacefully and support your family with confidence for many decades.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

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