Explore these alternative options to surrendering an insurance policy too:-
1. LET IT LAPSE (if just 1 year old)
a) Stopping paying the premium of an unsuitable policy lapses it automatically.
b) However, it is the costliest method if the policy has not completed 3 years, as the premium paid in first 2 years is forfeited.
c) You also lose tax benefits availed of in the first 2 years on its premiums.
d) However, if you had bought it just a year ago, it is better to get freedom from it than compounding your error in judgement.
2. CONVERT IT INTO A PAID-UP PLAN
a) A better alternative is to convert it into a paid-up policy, which is possible only after 3 years’ premium has been paid.
b) The insurer then uses these premiums already paid, without refunding it, to continue the life cover of the plan, by deducting the mortality charges from the accumulated corpus every year, for a proportionately reduced life cover over the rest of the term.
c) While your claimed tax benefits don't get reversed, and you won't have to pay any more premiums, you will get the remaining corpus only on the maturity of the policy.
d) However, there is an opportunity cost since the funds will remain blocked and will earn low returns instead of being deployed in a better investment product.
e) But, this is by far the best way because it frees you from further premium burden while you continue to avail the life cover.
3. CONTINUE POLICY (if nearing maturity)
a) If policy is just 2-3 years from maturity, it is best to pay the balance premiums.
b)This is because the painful period of high charges in the initial years has already gone and letting go of the accumulated benefits at the fag end of the term is not prudent.
c) Surrendering at this stage is loss of its life cover as well as its maturity benefits.
d) Turning it into a paid-up plan at this late stage will also not be of much use.
e) If there is a difficulty in paying the premium, it is more prudent to withdraw from PPF or even take a soft loan for the balance few years.
1. LET IT LAPSE (if just 1 year old)
a) Stopping paying the premium of an unsuitable policy lapses it automatically.
b) However, it is the costliest method if the policy has not completed 3 years, as the premium paid in first 2 years is forfeited.
c) You also lose tax benefits availed of in the first 2 years on its premiums.
d) However, if you had bought it just a year ago, it is better to get freedom from it than compounding your error in judgement.
2. CONVERT IT INTO A PAID-UP PLAN
a) A better alternative is to convert it into a paid-up policy, which is possible only after 3 years’ premium has been paid.
b) The insurer then uses these premiums already paid, without refunding it, to continue the life cover of the plan, by deducting the mortality charges from the accumulated corpus every year, for a proportionately reduced life cover over the rest of the term.
c) While your claimed tax benefits don't get reversed, and you won't have to pay any more premiums, you will get the remaining corpus only on the maturity of the policy.
d) However, there is an opportunity cost since the funds will remain blocked and will earn low returns instead of being deployed in a better investment product.
e) But, this is by far the best way because it frees you from further premium burden while you continue to avail the life cover.
3. CONTINUE POLICY (if nearing maturity)
a) If policy is just 2-3 years from maturity, it is best to pay the balance premiums.
b)This is because the painful period of high charges in the initial years has already gone and letting go of the accumulated benefits at the fag end of the term is not prudent.
c) Surrendering at this stage is loss of its life cover as well as its maturity benefits.
d) Turning it into a paid-up plan at this late stage will also not be of much use.
e) If there is a difficulty in paying the premium, it is more prudent to withdraw from PPF or even take a soft loan for the balance few years.