Thank you Ji. But for most of the policies, PPT (premium payment term) is over.. and getting annual survival benefits @ 5.5% pa of SA.

Ans: Given that most of your policies have completed their premium payment term and are now providing annual survival benefits at 5.5% per annum of the Sum Assured, it's worth considering surrendering these policies. Although the survival benefit provides a steady income, the returns are relatively low compared to what you could potentially earn by reinvesting the surrender value in mutual funds.

Mutual funds, especially equity-oriented ones, typically offer higher returns over the long term, which could significantly outpace the 5.5% you're currently receiving. By reallocating these funds into a well-diversified mutual fund portfolio, you could enhance your overall returns, align better with your financial goals, and achieve a more robust growth trajectory for your investments.

So, even with the annual survival benefits, surrendering the policies and reinvesting in mutual funds is likely a better financial strategy.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

I am a 60-year-young, disciplined bachelor with insurance coverage of Rs. 1 crore, which includes both a term plan and traditional plans. I am self-dependent, and no one is financially dependent on me. Since I don't have a need to create a legacy,. Having decided to surrender my traditional policies (having understood the surrender charges) out of the total insurance coverage of 1 Cr. which includes, Term plan. I narrate the policy terms & benefits, so that you can suggest me the better: 1) PPT (Premium Payment) for the policy is over, I have no premium commitment now. 2) Annual Survival Benefit: Currently receiving 5.5% of the Sum Assured annually. (which is almost equal to the return from FDR or Debt fund) 3) Bonus: at the end of the policy term there will be bonus in the policy which also I got it which is approx 80% of the premiums paid. 3) Life Cover: Coverage until 100 years of age, with annual survival benefit @ 5.5% of Sum assured, and death benfit - the Sum Assured plus accumulated bonuses will be paid to the nominee 4) Maturity Benefit: On survival until 100 years, the entire Sum Assured plus accumulated bonuses will be given to the assured.. I have planned at the time of siginging for the policy agreement, with 12 policies to get every month 5.5% of SA, like pension (passive income). Now, ji, please suggest me, Do you I need to surrender the policy considering 80% of premuium paid is received and getting 5.5% pa every month. with no premium commitment and coverage upto 100 years.

Ans: You have a well-structured insurance portfolio with Rs. 1 crore coverage. This includes term and traditional plans. The plan you mentioned provides a 5.5% annual survival benefit, life cover until age 100, and a maturity benefit. The idea of using these policies as a form of pension by receiving 5.5% of the sum assured monthly is thoughtful.

Given your current situation—no dependents and no need to create a legacy—your focus shifts from protection to optimizing returns. With the premium payment term over, you face no further financial commitments. Your plan is now a source of regular income, and at the end of the term, you will receive a bonus amounting to 80% of the premiums paid.

Evaluating the Need to Continue or Surrender the Policies
Benefits of Continuing with the Policy
Regular Income: The 5.5% survival benefit provides a steady income stream. This is particularly useful if you require a predictable cash flow.

Life Cover Until Age 100: While you may not need life cover, this ensures a safety net is in place. Should anything happen, your nominee receives a substantial amount.

Maturity Benefit: The policy promises the sum assured plus accumulated bonuses at age 100. This is a significant amount that adds to your financial security in your later years.

No Further Commitments: With the premium payment term over, you don’t need to invest any more money into this policy. You are just reaping the benefits now.

Drawbacks of Continuing with the Policy
Low Returns: The 5.5% return is modest, akin to the returns from fixed deposits or debt funds. Over time, inflation might erode the purchasing power of this income.

Opportunity Cost: If you surrender the policy, you could potentially invest the surrender value in higher-yielding investments. This could provide better returns over time.

Limited Flexibility: Insurance policies like this one are rigid. You can't easily adjust your investment based on changing market conditions.

Should You Surrender the Policy?
Factors Favoring Surrender
Unlocking Higher Returns: By surrendering the policy, you can reinvest the surrender value in more lucrative options. Actively managed mutual funds, for instance, offer potential for higher returns.

No Need for Life Cover: With no dependents, the life cover aspect may not be essential. The focus should be on maximizing your financial returns rather than providing a death benefit.

Maximizing Financial Freedom: Reinvesting the surrender value gives you more control over your finances. You can tailor your investments to suit your risk tolerance and financial goals.

Factors Against Surrender
Guaranteed Income: If you value the certainty of the 5.5% survival benefit, continuing the policy is advantageous. This is especially true if you prefer a low-risk, predictable income stream.

Bonus Payout: At the end of the term, you receive a bonus equivalent to 80% of the premiums paid. Surrendering the policy means forfeiting this benefit.

Emotional Comfort: Sometimes, the comfort of having a guaranteed income, regardless of the returns, can outweigh the potential for higher returns elsewhere.

Exploring Alternative Investment Options
Actively Managed Mutual Funds
Higher Returns Potential: Actively managed funds often outperform passive options like index funds. Experienced fund managers can navigate market fluctuations to maximize returns.

Professional Guidance: Investing through a Certified Financial Planner ensures that your investments are aligned with your goals. This helps in optimizing returns while managing risk.

Reinvestment Flexibility: You have the flexibility to reinvest dividends or capital gains, allowing for compounding growth.

Avoiding Direct Funds
Lack of Professional Management: Direct funds require a hands-on approach. Without professional guidance, you might miss out on potential gains or take on unnecessary risks.

Complexity: Direct funds demand more time and knowledge. Unless you’re an expert, this can lead to suboptimal decisions.

Benefits of Regular Funds: By investing through a Certified Financial Planner, you gain access to regular funds. These offer the expertise of a fund manager who can help you navigate market conditions and maximize returns.

Insurance Strategy: Term Plan vs. Traditional Plans
Advantages of Term Plans
Cost-Effective: Term plans provide high coverage at a low cost. This frees up more funds for other investments.

Focus on Wealth Building: With no dependents, you can focus on wealth accumulation rather than protection. The money saved from term insurance premiums can be invested in high-return avenues.

Disadvantages of Traditional Plans
Low Returns: Traditional plans often provide lower returns compared to other investment options. They are primarily designed for protection, not wealth creation.

Lack of Flexibility: Traditional plans are rigid. Once you’re locked in, it’s difficult to adapt to changing financial needs or market conditions.

Should You Retain Your Term Plan?
Minimal Cost: If your term plan premium is low, retaining it might be a good idea. It provides peace of mind at a negligible cost.

Focus on Other Investments: With your primary protection in place, you can focus on building your wealth through other investment options.

Final Insights
In your situation, maximizing your financial returns is key. The traditional policy provides a steady income but may not offer the best returns long-term. Surrendering the policy and reinvesting in actively managed mutual funds could yield better results. This strategy allows you to tailor your investments to your financial goals and risk tolerance.

With no dependents, your primary focus should be on wealth accumulation and enjoying your financial independence. A Certified Financial Planner can guide you through this process, ensuring that your investments are optimized for growth while managing risk.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in