The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a weekly Q&A on insurance.
I have an endowment assurance policy which I bought two years ago. My colleague has been telling me his agent has recommended some great new plans. He is urging me to surrender the existing policy and buy a new one. Is it a good idea?
An endowment assurance plan is a long-term savings-cum-protection plan which allows you to accumulate a lump sum over a period of time. Such plans yield their full returns when held till maturity. In case you have a participating plan, which means you are eligible for bonuses, this effect would be more pronounced.
Please keep in mind that when you buy a new plan, you will again incur fresh charges for the purchase of the plan. These costs will become progressively lower and become more beneficial as you stay invested. In your case, you have stayed through the initial phase and are now in a position to reap the benefits better by staying invested.
If you surrender this plan and buy a new plan, you will lose the benefits accrued in the existing plan and in addition, would have to incur the charges for a new plan. In any case, please ensure that the insurance proposal for your new plan is accepted by the insurance company, and the policy has been received by you, before discontinuing any existing plan.
I had purchased a unit-linked insurance plan (Ulip) three years ago. My agent had told me that I needed to pay for three years and withdraw the fund value. Now I have received a renewal notice and I realize that I can actually continue paying premiums for 15 years. Should I withdraw or continue?
An insurance plan, when used as a savings vehicle, yields the maximum benefits if you stay invested for the length of the term. Generally, a new Ulip would have higher charges in the first three years and progressively low charges (or even no charges) thereafter. Hence, my recommendation is that you should stay invested for the full term to maximize your savings and tax benefits.
Readers are welcome to write in with their queries to email@example.com. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is Rajesh Relan, managing director, MetLife.