Here's what to do with an endowment policy that is proving to be a drain on your resources.

 

 

It's an offer most people find hard to refuse. With the tax-saving deadline bear ing down on them and offers of insur ance-cum-investment policies pouring in, most investors succumb and buy traditional endowment plans. However, they typically realise the folly a few years later, when either the high premium or promise of low returns becomes a concern. What should they do in such a situation?
Depending on the period of holding and terms of policy, they have three options: surrender, continue or convert it into a paid-up plan. Surrender if there is a long time to maturity, the premium paid is not high and surrender charges are acceptable. If the maturity is a couple of years away, continue. However, if the term is between these two, change it to a paid-up policy.

If you surrender: When the policy is closer to commencement, the insured gets back close to 30% of the premium paid. If he has paid for a longer period, the value is close to 75%. It's an option one must be sure about because once you surrender, the policy is terminated. Since each company and their plans have different surrender values, one should check with the insurer before doing so. Also, if you have claimed tax deduction for premium under Section 80C and surrender within three years of buying it, the deduction will be taxable in the year of surrender.

You can surrender by approaching a branch office or contacting the insurance adviser. You will have to submit the surrender form, original policy document, photocopy of ID proof and a cancelled cheque. After a confirmation call, the pay-out is processed in 8-10 working days. This process may vary depending on your insurer.

If you convert it to paid-up plan:

If you want to avoid incurring the high cost of policy till maturity, consider this option. If you stop paying the premiums, you will continue to enjoy the cover and the policy will acquire a paid-up value, which is given on maturity.The policy turns into a paid-up plan if premiums are not paid for two consecutive years.You can also convert it by approaching the branch office or the agent.

If you continue till maturity:

The return on maturity will be only around 6.5%, which is unlikely to beat inflation. Policyholders are not told about the returns, the products their money are invested in, and exit clauses, including surrender charges