Why Did I decide to lose my 70,000?

For all the financial decisions, people say that you should always look at the larger picture and strategic goals in life and this weekend I did the same. After giving a lot of thought process finally I decided to bite the bullet by surrendering my LIC Jeevan Anand policy which was indeed a wrong investment. In the process I will have to lose my 70K out of the premium deposited so far.

I know first reaction from everyone would be why? This is expected because every one of us must have heard the LIC agent saying that “Jeevan Anand” is the most selling and best rewarding policy from LIC. Today, I would like to question that with the rationale behind my decision. I hope you would agree to me by the time you will finish reading this article.

Current Scenario:

I had a Jeeven Anand policy since 2007 with an annual premium of 28,260 with sum assured of 7lakhs. If all goes well, I would have received around 14.0Lakhs (considering last 5 years historical payout ratio of the same plan) at the maturity in 2032. This is an annual return of 4.5% over a 25 years period. If some mishap happens, you get your investment along with 100000 as bonus and sum assured. In total, it should not be more than 14-15 lakhs for sure. The surrender value of my investment is 89000 as on date.

• Total life cover: 7 lakhs (for next 20 years)

• If not availed total amount paid at maturity – 14lakhs. (subject to change depending on certain parameters set by LIC in future)

Revised Planning:

I have bifurcated my insurance and investment. I have opted for a 50 lakh life cover via a term insurance for which I have to pay around 4,260 (Agon Religare online plan for non-smoker, non-drinker) every year for next 20 years.

Another Investment that I have planned is recurring deposit of the same premium amount minus the term insurance premium to PPF on monthly basis. So I will be putting 2000 {(28260-4260)/12} in my PPF account every month for next 20 years. Considering the current annual rate of 8.25% this investment will fetch me around 12.2 lakhs and if I add the 89,000 that I have received as a surrender value the amount reaches to 16.9 lakhs. This amounts to a net profit of 2.9 lakhs over the rest of the policy term.

Do not forget in the revised planning, my life coverage is more than 7 times what I had with Jeevan Anand. Also, the investment made via PPF is dual tax beneficial (at the time of investment and redemption both) and moreover, after 5 years I may withdraw upto 50% of my investment if some urgency required which is not a case if I continue investing in Jeevan Anand. (I can avail a loan but interest on loan taken is always on the higher side). Hence summary of the revised planning-

• Life cover for next 20 years – 50 lakhs

• Assured return of 16.9 lakhs at the end of 20th year.

• This also gives a flexibility to withdraw up to 50% of your investment after 5 years.

Summary:

It’s always good to separate your insurance and investment. Just think if I had started investing this 2000 six years ago in PPF in place of LIC Jeevan Anand and the corpus would have been 1.9 lakhs today. But it is said better late than never. I took a hard decision where I have notional loss of 70k but by the time policy gets matured I will be benefited by around 3 lakhs with a life cover of more than 7 times what my current policy was offering.

Food for thought:

For someone at the age of 25, starts investing 200/day in PPF, this will fetch him a corpus of 1.5 Crores (considering an annualized return of 8.25%) by the time he will retire at the age of 60.

Thank You PAPA!!!

Laxman, a daily wage laborer whose livelihood mainly depends on the tiny amount he gets from loading and unloading stuffs of my building material shop run by my father and a fare that he gets from his manual three-wheeler. When asked, how much he manage to make in a month and how much he is able to save. To my surprise, he said he manages to earn around 6000 per month and has taken life insurance policies for himself and his wife and never defaulted for any of the premiums. Asking about what is he targeting next… He says- “I am saving for the marriage of his daughter who is just 10 and his son who is 12 and whom he wants to become a graduate someday so that his son had not to do what he is doing today”. I could sense a clear determination and dream in his eyes. I got emotional when I heard this. A man with 200 rupees of earning per day has a dream and he is trying to achieve his dream in his own limited way. I said to him, make your son graduate and I will make sure that he gets a job. He was delighted and there was a special spark in his eyes to hear this.

When I shared this to my dad, he said something very significant and I was left with moist eyes. He said – “Whatever he is trying to achieve today for his kids is something what I wanted some 20 years back with Rs. 1000 as my monthly earnings. I was doing the same thing what Laxman is doing today but I always wanted that my kids get the best education possible and I was determined to make this happen. I had to compromise on many of the basic necessities in my life but I made sure that you and your sister do well in studies. I always tried to give the best with the limited resources available to me and I do not have any regret after seeing you and Chanda with whatever you have achieved.” He made me first graduate in the family and first MBA in my village. My sister became the second graduate in commerce and would become a post graduate by December this year. A dream that started decades ago and got a shape as time progressed. I think I am blessed to have a father like him who always wanted me to do well so that I can make a difference. Today when people appreciate his effort I can sense the proudness he carries but at the same time I do not forget it has come with a lots of sacrifices my family had to make.

After looking back, I notice that no matter whatever heights I attain in my professional and personal life, it is this background which always holds me grounded and I feel really lucky to go through all these because life’s biggest lesson is hidden in this journey. The more I grow the more grounded I feel as time progresses. Also, this gives me so much of strength that if my father can have a dream of making me and my sister graduate with a tiny thousand rupees of earning per month, for me sky should be the limit. Just wish and hope that I will make it big one day and make my parents more proud for whatever he has done for me and my family.

With Love,

Nandlal

I regret that I could not send you to an Engish medium school

Down Memory Lane:

• 27th Apr 2005: My dad was a proud man because I became the first one in my family to complete Graduation. BUT He said "I regret that I could never send you in an English Medium school..."
• May'05-07: I was working on English so that I can make it big someday and finally got it to full-time MBA. It took me two years to bridge the gap that i had missed in twelve years of school education. Finally It paid off...
• May'07-09: MBA with distinction while availing 60% fees as scholarship. Also awarded "Best All Rounder of the Batch 2009".
• May’09-12: Worked with MNCs like BNYMellon and Ernst & Young.
• Apr’13: Handling multi-county, multi-currency deals, budgeting, planning and reporting at NIIT Technologies.

My dad is again proud with no regrets any more.... :-)

One sentence made all the difference....  Never thought tat I would be able to do it but thanks papa for all the support to make it happen.