# The September Book Giveaway — Help a Reader Save Up To Rs 134,034 and Stand a Chance To Win a Year’s Subscription To Value Research Wealth Insight Magazine

Continuing the story from where I left it last, a Capital Advisor reader wrote in —

My husband, aged 35, has a Jeevan Anand policy for a sum assured of Rs 15 lacs for which the annual premium is Rs 82,524. The policy inception date is 23-November-2009 and the maturity date is 23-November-2030.

I, being a housewife and aged 30, also have a Jeevan Anand policy for a sum assured of Rs 10 lacs for which the annual premium is Rs 51,510. The policy inception date is 26-November-2009 and the maturity date is 26-November-2030.

I honestly don’t understand why the agent sold us a policy in my name. The premium for this year is soon due in November, 2012, but having read your past articles I’m not sure if we should continue these policies at all. I’d like to know which Jeevan Anand policy should we surrender and what our overall loss would be upon surrendering.

Rs 134,034 per year as premium for two Jeevan Anand policies! I am speechless! But here’s your chance to speak up and advise this reader about what they ought to do with those useless policies.

The best answer wins a full year’s subscription (12-issues; postal delivery) to Value Research’s Wealth Insight magazine. I read this magazine each month and I find it quite insightful (!).

#### 9 thoughts on “The September Book Giveaway — Help a Reader Save Up To Rs 134,034 and Stand a Chance To Win a Year’s Subscription To Value Research Wealth Insight Magazine”

1. Anil Kuppa says:

Here’s my calculation:
Total Amount paid for every year=134034
Current Value of the total amounts paid=134034*(1.095)^3 + 134034*(1.095)^2 + 134034*(1.095)^1
hence, total Current value=175977.58+160710.12 + 146767.23
= 483454.93
assuming that 9.5% is the returns on a standard FD
Surrender Value = 30% of (134034*2)=80420.4
Total Loss = 483454.93- 80420.4=403034.53
If you surrender now, the total loss would be approximately 4 Lakhs!!!
Since you’ve already paid for 3 years, you can surrender it.
If you want to convert the policy to paid up policy, you could stop paying now and receive the amount at the maturity.
You would receive a total amount of = 25,00,000 * 3/20= 375000
On converting a paid up policy, you would get a sum equal to the sum assured * number of premiums paid/ total number of premiums.
You will receive this amount after 17 years.
Current value of that amount is = 375000/(1.095)^17
=80167

The current value on surrendering the policy (80420.4) is more than the amount you receive in converting into a paid up policy.

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Hi Vinaya,
We have seen a number of posts now on Jeevan Anand policy. We now want something different!!!

Thanks.

2. Vinaya HS says:

@Anil Kuppa —

Thanks for the detailed response. :-)

That’s the whole problem with Jeevan Anand. It’s omnipresent — so you can’t ignore it even if you want to. ;-) My posts on Jeevan Anand are a tiny fraction of the horror stories that I read in my Inbox each day. He he he…

Will try and cut down though!

3. Ravi says:

1. First thing to do is stop paying the premium.
2. Since you have completed paying for 3 years, you can now surrender it. First premium is lost as per the policy and you get 30% of premium for the remaining two years which comes to 91,ooo (approximately).
3. It is better to get the surrender amount, instead of making it paid up. Consider you get the paid up value as 4-5 lakh (inclusive of the amount he has deposited for you), for the same 90k if you do a PPF/PF , you will get a tax-free return that beats this amount
4. Since you anyways need an insurance, deposit this money (Say 10yrs, and you will get an 8.5% interest per annum) and out of the interest you get, you can happily pay the premim of term insurance. (This is the most conservative approach, unless you have another option where you get more).
5. With the premium saved, you now have a new cash flow (pretty decent amount), you can now start planning for your retirement. Invest in Direct equity(make sure you do enough research) else go for Mutual funds, PF and PPF which can save you taxes too!. You might also consider NPS which is a good product giving you the combination of equity and debt and returns are not taxed and also you can choose your own AMC.
6. Despite what ever suggest anyone gives, always check two things. One is does the product fall inline with your goals. It means to achieve your goals, does this product help you. else whats the point ? :) Second, after you think yes, check if there are any better alternatives and try to answer yourself why it is good for you and why does it need a place in your portfolio. When you do these there is very rare chance of comitting mistake. At the end of the day it is your hard earned money and due diligence is required before you give a commitment.

4. @Ravi —

Thanks for participating.

Very interesting perspectives are emerging. I need to go through each of the responses in finer detail. Lots of learning there.

5. manish says:

Dear madam ur both policy can be surrendered since u paid the required 3 year premiums but u”ll get reduced amt today minimum 30% of premium paid (excluding 1st year premium)
total amt paid for 2 yrs=134034 *2=268068 and the surrender value will be=268068*30
%=80420.here u got negative amt=total premium paid -s.v=-321681.so surrendering the policy is not the right thing to do also note if u surrender the policy u don’t get the actual accrued bonus bcoz it’s the future value.you will only gets the reduced accrued bonus in today’s term which is very less on the other hand paid up option is better than surrendering the policy.when u make the policy paid up the only thing u have to do is stop paying premium and lapse the policy the paid up value which u receive at the end of the maturity date is around 4.6 times of surrender value.the paid up value of both policy was rs375000+any bonus accrued.now at the end of maturity still there is loss of 27102 if u exclude bonus=total premium paid for the period of 3 yrs(402102)-paid up value of both the policy(375000)=-27102.this loss will be washed away if any accrued bonus will be received.after tht ur husband age will be 55 yrs now the plan is use ur proceeds from paid up amt and invest in senior citizen saving scheme .the investment are to be made in tht way so he will not have to pay any tax now for the simplicity i ll present the example.
paid up amt=375000,basic exemption=250000 senior citizen rate is 9% by investing 375000 he ll get int as 33750 to avoid the tds fill the form 15g and 15 h as the int amount is higher than 10k. from 250000 income u earn as int 33750 from this scheme by investing the paid up amt still u can earn 216250 as tax free income but for tht u have to use any proceeds u can breack ur fd’sfor this and invest in debt mutual funds or any other instrument in this way u can earn the tax free income along with ppf investments.on the other hand u need to take care of other investments as this will not take ur retirement needs

6. Rakesh says:

My take would be to surrender this policy immediately. The more your keep the more pain. Trust me i too had junk endowment policies and made them paid up few years back and i am very much relieved now.
Buy adequate online term insurance say 50L or 1 Crore as per your requirement, you will get it very cheap. Make sure you disclose all the information correctly. Invest the balance via SIP in equity diversified Mutual Funds with horizon of 15 years and above. You will definitely earn in the range of 12 – 15% returns.

7. Ashok says:

Hello Madam, This is very Rediculas.. The agent has cheated you and used your zero exposure towards insurance..
Anyway I do not want to confuse you. Just surrender the policy. And take that amount and invest in GOLD ETF or HDFC Prudence fund and Please forget it for minimum of 10 years.. Immediately take a Term policy for 50L or 1 crore with critical illness rider for 20 Years..And make sure that you do not take any other Life Insurance policies..

8. Jasbir singh Khalsa says:

Well Anil, Ravi and manish have good knowledge about surrender value and paid up value of this policy and they are correct at their point but I would recommend you not to surrender or paid up this policy… see each and every policy have some objectives… and the purpose of this policy… to give some amount at maturity which is 30-Nov,2030, at that time your husband’s age will be 55years, and you will require the pension… now let us calculate if you continue with the policy and pay till maturity date then first thing you will be paid on maturity like this way SUM ASSURED+INTERIM BONUS+FINAL ADDITION BONUS+LOYALTY ADDITION, thus for example if the interim bonus is 30/1000 of sum assured and final addition bonus is 100rs/1000 of sum assured and loyalty addition is 35/1000 of sum assured this according to last 20years average of bonuses given by LIC, thus by this way on your 25lac rs policy, you will be get 2500000+(30*2500*21)+(100*2500*21)+(35*2500*21)

=2500000+1575000+5250000+1837500
= 11162500Rs on maturity

Now let us calculate how much you invested in 21 years 134034*21= 2814714Rs

By this way rate of returns comes between 9%-10% compounded
in addition, after maturity, your death cover of amount same as sum assured will continue till the age of 99years and on completion of 99years you will get amount equal to sum assured

so i would recommend you not stop paying premiums or surrender it, instead of this you should continue with the policy, so that benefit of policy is achieved fully…as the rate of return on this policy is 9-10% further your death cover will continue even after retirement or maturity…..

9. Hi Jasbir singh Khalsa,
I would like to point out a small correction in your calculation. You calculated the amount invested as 134034*21= 2814714Rs. Well, there’s something called Time Value of Money which essentially means that 10Rs today in 2012 is never equal to 10Rs in 2020. We’ll have to check the inflation and all other costs and then find out how much the exact amount is. You can read more about it here: http://en.wikipedia.org/wiki/Time_value_of_money
The first question we need to ask is when is the amount being calculated? Is it being calculated now (Present Value) or after 21 years (Future Value)?
Let’s say you’re calculating the amount after 21 years. So, you should calculate the future value of the amount after 21 years . I have used the calculator present in : http://www.calculatorsoup.com/calculators/financial/future-value.php
Enter rate as 7%, number of periods as 21. You would find out that the maturity amount is 6013459.11 . This is the actual amount invested at the end of 21 years.
Now, this is the amount you can compare to calculate the effective interest rate.

Please let me know if you have any questions in this regard.