From endowment to term insurance - calculations

[nac]

You continue with taking PPF and Term plan but not surrendering your existing policy. Stop paying premium and let it continue under PAID-UP SUM ASSURED. You have paid three years premium, I guess you would get this feature in your plan. Ask your LIC agent or concerned about this. Don't loose your money by surrendering your policy.

 

[drsambu123]

Dear nac
Thanks. Your suggestion is very good. Instead of surrendering , i can go for the alternative idea.
i request readers of this forum to read a nice article about( against jeevan anands) in times of india dated 26-4-10
http://economictimes.indiatimes.com/quickiearticleshow/5858534.cms

 

[amit.mhatre30]

@aw10

Thanks for your views. All the things that you mentioned have been taken into account.

3297200 - is the total amount that I will get if I continue with the policy assuming a bonus of 45 rupees per thousand insured. Have not taken loyalty addition into account.

If I surrender the policy I will get 26617 back incurring a loss of 106469(Have paid 3 installments already).

Now let us assume I surrender the policy and go the PPF route from this year onwards till the policy mature date. The last column in the table indicate the PPF returns which sums to 5132763.

So, now, if I surrender the policy I stand to gain 5132763 - 3297200 = 1835563. Now this does not take into account the surrender loss. Taking into account the surrender loss 1835563 - 106469 = 1729094.

Now coming back to term insurance. Let us assume that I take the LIC Jeevan Amulya policy for 25 years. The premium I have to pay for 25 years for a policy of 14 lacs is 2240 per year. Now I have to deduct this from my PPF amount per year. There is no good way of doing this. So, let me see how much I will get if I put 2240 per year in PPF for 25 years . It comes out to be 176858. Now let me deduct this from my saving of 1729094 which turns out to be 1729094 - 176858 = 1552236. To this amount let me add the money I got as surrender value. As I get 26617 as surrender value let me see how much I will get for that amount if I invest it in ppf for 25 years at 8% per annum. It comes out to be 182286. So the savings is 1552236 + 182286 = 1734522.

Jeevan Anand provides accident benefit where as term insurance does not. ICICI Lombard provides accident cover of 20 lacs for 5 years at 12500. So for a policy for 25 years let us assume the premium is (pessimistic) 1 lac. Subtracting one lac from 1734522 - 100000 = 1634522. Still I stand to gain 16 odd lacs from the above.

The only disadvantage I see is that Jeevan Anand provides a life cover past the policy term but again 14 lacs after 25 years will not have much value I guess taking inflation into account. Even if I go for a term policy of 35 years(not 25 years as we have taken into account above) I am sure I will save more money than if I continue with Jeevan Anand.

Your thoughts?

brilliant reply. & thanks to making my faith stronger on equities & mf.