CONTINUING A POLICY

Indeed, it is necessary insurance protection is a must for every family to overcome the losses sustained by the family either due to the death of its main supporting family member or for any contingency that would arise at any point of time.  Some interesting facts can be discussed here as under:

1. Normally it is a thumb rule that one should go for an insurance coverage amounting to ten times of the current annual income.
2. In case if you have to discontinue your endowment during its tenancy, what are the precautions one should take?
   1. In the case of a Term Insurance Plan, simply stop paying your premiums and allow the policy to lapse.
   2. But under Endowment plans, insurance and savings benefits are combined and the death of the insured before its maturity permits the nominee to get the insured sum. In case the insured survives the tenure of the policy, he gets the maturity benefits. Also, if an he exits the policy before its maturity, the saved sum is impacted.
3. Abandoning of an Endowment policy can be done in two ways
   1. Convert your policy into a paid-up policy by avoiding payment of further premiums after the mandatory period or
   2. Surrender the policy and get the surrender value from the insurer.
   3. Under both options, the insured must pay the premium till the end of the mandatory period, which can be 2 or 3 years, depending on policy terms and conditions.
   4. Closure of the policy before the mandatory period amounts to loss of the full value.
4. Another option is Converting to Paid up policy. In case the insured wants to stop paying the premium after the mandatory period and wants to convert the regular policy into a Paid-up policy, the insurance will not expire.  The insured will remain insured but with a lower sum assured.  If the insured survives the tenure of the policy, he will get the maturity proceeds. On the insured’s death, nominee will get the benefit of the adjusted sum assured in proportion to the premiums paid.
   Example:  Let us say a policy with a sum assured amount of Rs. 50 lacs payable for 20 years with an annual premium of Rs. 50,000 taken.  If the policy is surrendered after 5 years, the sum assured will get reduced to Rs. 2.5 lacs since the policy is converted into a paid-up policy.
5. Option to surrender is also available. Here you can close the policy and get the surrender value.  A penalty for surrendering before its maturity will be charged.  A surrender in a third year will fetch the insured around 30% of the entire premium paid.  If surrendered between fourth and seventh years, the Surrender value will be around 50% of the premium paid.
6. Surrender of the policy closer to the maturity period means the surrender value will be higher in percentage terms. After 7^th year, insurers have the discretion to decide the amount they will pay back during a policy surrender.  Here policies will vary from one insurer to another.  Better thing is to know the surrender value before taking an endowment policy.
7. In case you pay premium of Rs. 50,000 per year and if you surrender the policy in the third year, you will bet only Rs. 45,000 since the total amount paid is only Rs. 1.5 lacs. Surrendering the policy in the 6^th year will fetch a sum of Rs. 1.5 lacs which is 50% of the total premium paid, since a total premium of Rs. 3 lacs is paid.
8. Always try to convert a policy to paid-up since surrendering of the policy amounts to a huge cost on your investments.

These are some of the useful tips once should consider before going for either cancellation or discontinuation of an endowment policy.