Should I Exit My 4-Year Jeevan Santhi Policy?

Ans: You're approaching your policy's maturity date in March 2026, and here are some options to consider for your SBI Life Retire Smart LP policy:

Understanding the Policy:

• Guaranteed Benefit: This policy guarantees 101% of your total paid premium on maturity. In your case, that's Rs 5,05,000 (1.01*Rs 5 lakh).
• Market Performance: The current fund value of Rs 5.70 lakh reflects how the units you invested in have performed in the market.

Decision Points at Maturity (March 2026):

• Surrender the Policy: You can receive the fund value (Rs 5.70 lakh) along with any guaranteed additions or terminal bonuses offered by SBI Life. However, check the policy documents for any surrender charges that might apply.
• Annuitise the Corpus: This option allows you to convert the total corpus (fund value + guaranteed additions) into a regular income stream through an annuity plan from SBI Life. This provides a guaranteed income but limits access to the principal amount.
• Continue the Policy (if allowed): Check with SBI Life if you have the option to extend the policy term. This allows the fund value to potentially grow further through market gains, but you'll continue paying premiums.

Choosing the Right Option:

Since I cannot give financial advice, here's how to make an informed decision:

• Review Policy Documents: Look for details on surrender charges, guaranteed additions, and the option to extend the policy.
• Contact SBI Life: Talk to your SBI Life advisor or customer care to understand the specific benefits and charges associated with each option.

Consider Your Needs:

• Retirement Income Needs: Do you need a guaranteed income stream (Annuity) or are you comfortable with some market risk for potentially higher returns (Continuing the Policy)?
• Other Retirement Savings: Do you have other sources of retirement income, like a pension or investments?
• Medical Needs: Factor in any potential medical expenses that might require a larger corpus.

Additional Tips:

• Market Performance: Consider the current market conditions. If the market is expected to perform well, continuing the policy might be beneficial.
• Risk Tolerance: How comfortable are you with market fluctuations? Annuities offer stability, while continuing the policy exposes you to market risks.

By carefully evaluating these factors and talking with SBI Life, you can make the best decision to secure your financial future in retirement.

Ans: Assessing Your LIC Policy
You have a LIC policy where you pay Rs. 2,220 monthly for 10 years. The policy matures in 15 years, with an expected maturity amount of Rs. 5 lakhs. Let's explore if it is wise to continue or discontinue this policy, considering your financial goals.

Evaluating the Policy’s Return
To begin, let's examine the return you are likely to get:

Premium Paid: Over 10 years, you will pay Rs. 2,220 monthly, totaling Rs. 2,66,400.
Maturity Amount: You will receive Rs. 5 lakhs after 15 years.
At first glance, it seems like you are getting back more than you paid. However, when you account for inflation and other factors, the return is modest.

Considering the Inflation Impact
Inflation reduces the purchasing power of your money over time. The Rs. 5 lakhs you expect to receive after 15 years will not have the same value as it does today.

Key Points to Note:

Inflation can erode the real value of your maturity amount.
The return you get may not match your financial needs in 15 years.
Analyzing Alternative Investment Options
There are other investment avenues that might offer better returns with the same or even lower risk. These include mutual funds, especially actively managed ones, where a Certified Financial Planner can help you pick funds that align with your risk profile and goals.

Advantages of Actively Managed Funds:

Potential for higher returns compared to traditional insurance policies.
Professional management and regular adjustments to maximize gains.
Assessing the Disadvantages of Continuing with the Policy
By continuing with the policy, you might miss out on higher returns offered by alternative investments.

Points to Consider:

Traditional insurance policies often provide lower returns.
Opportunity cost of not investing in higher-return options like mutual funds.
Should You Discontinue the Policy?
If your primary goal is wealth creation, this policy might not be the best option. Discontinuing and reallocating your funds could be a better strategy.

What You Should Do:

Consult with a Certified Financial Planner: They can guide you on the best mutual funds to switch to.
Consider Surrendering the Policy: If it aligns with your financial goals, you could surrender the policy and reinvest the proceeds in a better-performing investment.
Assessing the Insurance Aspect
It’s important to consider that this policy may also provide life coverage. However, the coverage offered by such policies is often inadequate compared to term insurance plans.

Key Insights:

Term insurance offers higher coverage at a lower premium.
You could get better protection by opting for a term insurance plan and investing the remaining funds elsewhere.
Understanding the Cost of Surrendering the Policy
If you decide to discontinue the policy, you might incur some costs. It's important to weigh these costs against the benefits of reinvesting your funds.

Key Considerations:

Check the surrender value and any penalties involved.
Calculate the potential gains from alternative investments after accounting for these costs.
Exploring a Balanced Approach
If you're unsure whether to continue or discontinue, a balanced approach could involve maintaining the policy while diversifying your investments.

Points to Think About:

Continue with the policy for its insurance cover while also starting a mutual fund SIP.
Reassess your investment strategy periodically with the help of a Certified Financial Planner.
Final Insights
Continuing with your LIC policy might not be the best decision if wealth creation is your main goal. There are other investment avenues like mutual funds that offer potentially higher returns. You might consider surrendering the policy and reinvesting the funds into mutual funds while ensuring you have adequate life insurance coverage through a term plan.

Steps You Should Take:

Review your financial goals with a Certified Financial Planner.
Consider the benefits of alternative investments like mutual funds.
Ensure you have sufficient life coverage through term insurance.
This way, you can make informed decisions that align with your long-term financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Some insurance companies even charge penalty similar to what is levied during policy surrender, for paid up policies.

Suggest you check that aspect with LIC.

If they are charging then it is better to surrender and exit.

If they are not charging then you may retain them as paid up policies and divert the policy premium amount to investment in mutual funds.

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing

Ans: Hello;

First you must ensure that you both have adequate term life insurance cover.

Taking loan for investment is not recommended under any circumstances.

Better option is to surrender these extremely low return endowment policies, after ensuring adequate term life cover, and invest the proceeds in mutual funds.

Returns from mutual funds cannot be assured however based on past record it is observed that generally equity mutual funds provide good inflation adjusted returns over long term.

Happy Investing;