I am 36 years, married and residing in Bengaluru. I had availed an endowment life insurance plan 3 years ago paying a premium of INR 30,000 a year. I also availed another endowment life insurance plan 2 years ago, after being persuaded by a life insurance agent. Both these plans have a term of 15 years. Now, a friend has told me the benefits of a term life insurance plan. I want to avail a term life insurance plan, but cannot afford paying premiums of all 3 life insurance plans. Should I discontinue the endowment life insurance plans and take up the term life plan? Will I lose the premiums I have paid. Kindly advise.
With a term life insurance plan, you pay a premium for a fixed time period. If something untoward happens to you within the term of the plan, your nominees get money called the death benefit. Your nominee gets nothing if you survive the term of the plan. If you discontinue the endowment life insurance plans, the insurer charges a very high surrender penalty. You could pay the surrender penalty and discontinue the plans, bearing a heavy loss. You could also continue paying the premiums and accept returns of just 3-5%, which is lower than inflation for the remaining term. Follow this rule of thumb: If you get an amount equal to all the premiums you have paid, surrender the endowment plans and invest part of the money in a term insurance plan. You can invest the rest of the money in fixed income securities like PPF or even equity/mutual funds depending on your risk profile. Generally insurers pay high commissions to insurance agents who sell endowment life insurance plans. Think before acting on the advice of sellers.
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