At Moneylife Foundation’s event, Raj Pradhan, an insurance expert, discussed the ways of exiting from life insurance and pension policies. Moneylife does not suggest buying insurance-cum-investment products, which will ensure that you are not in a situation of making difficult decisions about exiting a product. But, many are already trapped in ULIP (unit linked insurance plan) or traditional (endowment, money-back, whole-life) products and eagerly trying to find whether to continue with it, what loss if they try to exit and if there is a third option to handle the situation.
Moneylife Foundation Insurance Helpline received numerous such cases and gave customised feedback based on each case. Moneylife magazine has written a couple of cover stories on this subject in March 2012 (Surrendering Policy? Think Again) and October 2014 (Trapped in Wrong Life Insurance). There are various parameters to consider while making a decision on surrendering or continuing. After all, policy surrender is not the best option in most cases especially for traditional products and hence there is a need to be cautious if you are blindly surrendering life insurance policy.
The interactive two-hour session looked at options for handling old ULIP (pre-September 2010), new ULIP (post-September 2010), old Traditional (pre-January 2014) , new Traditional (post-January 2014), old ULPP (unit linked pension plan) of pre-September 2010, new ULPP (post-September 2010), old Pension Traditional (pre-January 2014) and new Pension Traditional (post-January 2014). Real life examples were discussed along with cases from audience.
Old ULIPs had challenge of non-standard surrender charges, which in some cases continues till end of policy term. The saving grace is “cover continuance” feature which allows the insured to stop paying premium after three years and remain invested without surrender. It certainly is an option for the insured especially if the fund performance is good and surrender charges prevent from easy surrender.
New ULIPs have standard surrender charges, but it got rid of good feature of cover continuance which means your policy will auto surrender if you stop paying premium. Traditional products have a drawback of pathetic guaranteed surrender value. While new traditional (post-January 2014) improved the guaranteed surrender value, it still falls short of any decent value which can help you to surrender without a loss. So, there is huge dependency on non-guaranteed special surrender value if you are keen on policy surrender. “Paid-up” is an option for traditional policies which have a surrender value. It is similar to cover continuance wherein you do not pay premium but do not surrender till end of the policy term.
Handling a pension policy is the most difficult due to tax implications for policy surrender. Moneylife has done a cover story on it which is a one of its kind. Read – http://www.moneylife.in/article/are-your-pension-life-insurance-plans-tax-traps/31671.html Your options are limited to continuation of premium payment or cover continuance/ paid-up. But, what about new ULPP which do not offer cover continuance?
The policyholder need to understand that fraudulent calls are made for not just policy mis-selling, but also for mis-selling for surrender. The fraudsters want you to surrender existing policy so that the money can be invested in a new insurance product to help earn commission for intermediaries.
Buying an online term plan for your life insurance needs will help ensure that you don’t have to worry about loss during policy surrender. Buy with utmost good faith giving all the required details without the agent filling on your behalf. It will help to secure your family finances, in case of premature death of the insured.