My LIC policy premiums will be completed in 2024. Should I again go with LIC policies or just term insurance?

Ans: Any term insurance plan is good. Just make sure that you provide accurate information to the insurance companies when you buy the policy.

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: Hello;

What is your current age, sum assured, policy term and premium paying term for jeevan lakshya policy?

Based on your input we can recommend you suitably.

Best wishes;

Ans: You have held these LIC policies for a long time.

You have been disciplined in paying premiums.

That shows commitment and patience.

But it is also important to assess if they are helping you build wealth.

Let us do a complete 360-degree assessment from a Certified Financial Planner’s view.

This will help you take a confident and informed decision.

Your Existing LIC Policies – A Summary Review

Policy 1: Jeevan Saral (started Dec 2008)

Monthly premium: Rs.1,021

Sum Assured: Rs.2.5 lakhs

Maturity: Dec 2043 (35 years term)

Policy 2: Jeevan Saral (started July 2007)

Half-yearly premium: Rs.15,162

Sum Assured: Rs.6.25 lakhs

Maturity: Dec 2043 (36.5 years term)

Policy 3: Jeevan Mitra – Triple Cover (started April 2003)

Annual premium: Rs.3,731

Sum Assured: Rs.1 lakh

Maturity: April 2033 (30 years term)

Policy 4: Jeevan Anand (started Nov 2003)

Annual premium: Rs.4,176

Sum Assured: Rs.1 lakh

Maturity: Nov 2027 (24 years term)

What Needs to Be Evaluated in Your Policies

Total premium paid so far.

Number of years left for maturity.

Guaranteed maturity benefit.

Bonus declared each year by LIC.

Internal Rate of Return (IRR).

How Jeevan Saral and Other LIC Plans Really Perform

LIC policies are mostly traditional endowment-type products.

They promise guaranteed returns and bonuses.

But the real returns are usually very low.

In most Jeevan Saral cases, final returns are between 4% to 5% per year.

Some even get less than 4% IRR.

That is much below inflation.

Why Jeevan Saral Needs Serious Review

LIC stopped selling Jeevan Saral.

There were many complaints about maturity mismatch.

Projections made by agents were often too optimistic.

Agents showed high maturity values which were not guaranteed.

In reality, maturity depends on age at entry and term.

Older policyholders often got very low maturity values.

Your Jeevan Saral Policies – Key Concerns

One policy has Rs.1,021 monthly premium for 35 years.

The total premium paid will be nearly Rs.4.3 lakhs.

Sum assured is only Rs.2.5 lakhs.

Expected maturity can be Rs.5 to 6 lakhs depending on bonus.

But that means less than 5% return for 35 years.

Second Jeevan Saral policy has higher premium of Rs.15,162 half-yearly.

Total paid will cross Rs.21 lakhs by 2043.

Sum assured is Rs.6.25 lakhs only.

Even with loyalty additions, returns may remain under 5.5%.

What About Jeevan Mitra and Jeevan Anand?

These are older plans with low sum assured.

Jeevan Mitra offers triple cover but investment value is low.

Jeevan Anand continues coverage even after maturity.

But it is of no real benefit unless it is for life insurance need.

Premiums are small, but the returns are not attractive.

Total investment is locked in for long term.

Big Issue – Mixing Insurance with Investment

LIC policies combine insurance and investment.

This is not ideal.

Insurance should give protection only.

Investment should create wealth.

Mixing both gives neither good coverage nor good returns.

Why You Should Surrender – Analytical Assessment

Your goal should be wealth creation and financial protection.

These LIC policies give low returns.

Real return after inflation may be zero or negative.

Even if held till maturity, returns remain weak.

These funds are better used in mutual funds with CFP guidance.

What Happens If You Surrender Now?

All your policies have completed more than 20 years or close to it.

That means surrender value will be higher than early years.

LIC will give you guaranteed surrender value plus bonuses.

In most cases, surrender gives 30% to 50% of total premiums paid.

But if you reinvest wisely, you can recover this gap.

The earlier you surrender, the faster your wealth creation begins.

Reinvestment Strategy – 360-Degree View

Surrender values can be reinvested into mutual funds.

Use actively managed equity funds with long term view.

Always invest through a CFP and MFD, not in direct plans.

Direct funds do not offer help or regular review.

Regular funds via CFP give guidance, rebalancing and emotional support.

Why Not Direct Funds? Key Disadvantages

No one to support during market fall.

No plan to shift asset when goals change.

No help in tax planning.

No family guidance in your absence.

Most people stop SIPs or withdraw in panic without advisor help.

Returns in direct funds may look high, but are rarely achieved.

Why Not Index Funds Also

Index funds copy market blindly.

They can’t protect from downside.

They don’t shift allocation during market bubble.

You get average market returns only.

No active fund manager to add value.

Good active funds have beaten index consistently in India.

India is not yet a mature market for passive investing.

What You Must Do Now – Action Steps

Take surrender quotes for all four LIC policies.

Check exact surrender value and accumulated bonuses.

Do not delay. Every month wasted is loss of growth.

Consult a Certified Financial Planner and execute surrender with confidence.

Shift the proceeds to mutual funds under long-term plan.

Allocate funds based on your risk level and goals.

Use SIPs and STP for reinvestment if large corpus.

Do You Need Insurance Now Separately?

Buy a term insurance plan for full protection.

Term plan is pure cover, no savings.

Premium is very low for large cover.

It is best way to protect your family.

Final Insights

You have kept the policies for long. That discipline is rare.

But continuing them will not create meaningful wealth.

LIC policies serve purpose only for guaranteed returns and simple safety.

But they don’t grow your money fast.

You should not mix insurance and investment.

Surrendering is not a loss. It is a correction.

Mutual funds offer better returns, more flexibility and full transparency.

You will also get better control of your money.

Your money must work for you. LIC policies are not doing that.

With right CFP guidance, you can recover and grow faster.

Start now. Every month delayed is growth lost.

Take smart decisions. Not emotional ones.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Ans: Hello;

This being a neutral forum it would be inappropriate to name xyz Insurance as better.

But you should look at the following aspects while selecting insurer for life insurance:

1. Claim settlement record for 3-5 years.
2. Capital adequacy and Solvency
3. Listed companies may have edge because disclosures are higher.
4. Strong parentage & group reputation.
5. Minimum exclusions
6. Lower costs

Despite availability of many riders it is better to take following 2 riders:

1. Accident benefit
2. Critical illness

You may do some online comparision on web aggregator platforms and arrive at a suitable decision appropriately.

Fix a timeline for yourself to take that insurance buy decision which will ensure that procrastination doesn't harm you in the research process.

Best wishes;