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.