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What should I do with my Endowment Policy?

Query: I am a 35-year person working at the middle-management level in an MNC . Four years back I had purchased an endowment policy for a 20-year term. I am not happy with the returns. What should I do?

Answer: There are three alternatives to this problem.

Alternative A: Surrender it. You will get back only around 25-30% of the total premiums paid over the last four years.


Alternative B: Convert the policy to a partly paid-up one. This will proportionately reduce the insurance cover, but you don’t have to pay any premiums hereinafter. You will get back the paid-up value + bonus accumulated till today after 16 years when the policy matures as per the original policy term.

Alternative C: Continue with it. You will earn poor returns on your investment.

Needless to mention, the last alternative is the worst.

Given your profile and the fact that the policy is in very early years, the best alternative would be to surrender the policy. Yes, you will lose 70-75% of the premiums paid till date. Yes it will hurt.

However, if you can earn about 9-12% p.a. returns on the 25-30% money that you get back + the amounts which you would have otherwise paid as premiums, you will still end-up with a higher corpus at the end of 20 years. Earning 9-12% p.a. returns over such a long period is quite feasible and realistic. Therefore, it is better to undergo the painful surgery today rather than suffering for the next 16 years.

But, if you don't like to take a hit, make the policy partly paid-up and wait for 16 years to get back your money.


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