I regularly receive emails where readers express their horror stories about LIC’s Jeevan Anand policy. Believing an agent’s (who often happens to be a neighbor/relative/friend) fictional stories of risk and return, they buy the policy only to discover that they need to pay exorbitant premiums for the next 20-years and that when they want to surrender the policy realize that they have a pure yellow lemon in their hand. This realization usually comes after two annual premiums have been paid and the third one is shortly due. So, the question that I am asked to address is should they choose to “pay exorbitant premiums for a few more years and incur a loss” or “pay one more exorbitant premium and incur a loss.”
Here are two sample emails that I recently received.
Please suggest whether I should opt for LIC’s Jeevan Anand policy or not. I am looking for a short-term plan. My agent suggested taking a Jeevan Anand policy for 5-years. I need to pay an annual premium of Rs 24,000 and after the term of 5-years, I will supposedly get Rs 2 lacs (1 lac sum assured plus 1 lac bonus as quoted by the agent).
Does this sound OK or are there any hidden loop holes? Will I get al least Rs 2 lacs after 5-years? Is there any better short-term plan offered by LIC?
I have an LIC Jeevan Anand policy for which I have already paid 2-annual premiums of Rs 25,000 each. In February, I need to pay the third premium. When I purchased the policy, the agent had said that I can close the policy after 3-years. But he never disclosed the fact that even after paying the third premium, I will only get 30% of the last two premiums paid which comes to somewhere around Rs 15,000. If I close the policy now, I won’t get even a rupee back.
I’m not able to understand how you got Rs 50,000 after 6-years. My agent isn’t helping me with any information either. Should I wait for 6-years and get back Rs 50,000 (like you did)? But I don’t want to pay any more premiums after 3-years. Won’t it be better to pay Rs 75,000 in premiums and get back Rs 50,000 after 6-years rather than pay Rs 75,000 in premiums and get back Rs 15,000 after 3-years?
And, way back in May last year, reader Raghuram had asked:
I have been a regular reader of your blog and have learned a lot from you. I have made good investments and have taken proper health insurance and pure term insurance covers for my family. But one mistake I’ve made goes 3-years back when I took an LIC Jeevan Anand policy for 10 lacs cover for 20-years.
After my marriage, because of pressure from a relative (who happened to be an insurance agent), I buckled and bought this policy without reading it or knowing what I was doing. Now I am repenting. I am paying a premium of Rs 42,016 per annum and I have paid 3 premiums so far. The next premium is due in June, 2011.
I went to the local LIC Office and inquired about â€œthe surrender procedure and the surrender amountâ€ that I may get. If I surrender the policy now, I will get around Rs 24,000, which is less than 20% of what I have paid till now. The officer suggested that I hold on to this policy for 2 more years (total 5-years) and then surrender it so that I can get a surrender value of 12.5% of the insured amount (means 12.5% of 1,00,0000 = 1,25,000.)
That means I have to pay another Rs 84,000 and wait for 2 more years to get 1.25 lacs. Here’s what I’m thinking:
Plan #1 — Surrender the policy today
Total Payment = Rs 42,016 x 3 = Rs 1,26,048
Surrender Value = Rs 24,000
Loss = Rs 1,02,000
Plan #2 — Surrender the policy after 2 more years
Total Payment = Rs 42,016 x 5 = Rs 2,10,080
Surrender Value = Rs 1,25,000
Loss = Rs 85,000
Now I need your help. What shall I do? Please let me know your views and thoughts on this and help me out. Waiting to hear back from you.
Here’s what I had replied and this could be a framework to base your decision upon:
I’d cut my losses today.
Think about it this way.
Surrender value of 24,000 today = 28,250 two-years from now @ 8.5% in an FD
1st extra premium of 42,000 today = 49,500 two-years from now @ 8.5% in an FD
2nd extra premium of 42,000 one year from today = 45,600 two-years from now @ 8.5% in an FD
So, at the end of two-years you’ve roughly made 15,350 in interest. More if the interest rate is higher. The notional loss of 17,000 b/w Scenario 1 and Scenario 2 is more or less made up by the interest you earn. Plus, you don’t know what will happen 2-years from today…and the 12.5% return is somewhat suspicious…I didn’t find any such Terms and Conditions in my Jeevan Anand.
What do you say?