Life Insurance

How to know if you have the right Life Insurance

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Should you surrender your life insurance endowment policy

Undeniably, the endowment plans available today are very difficult to understand indeed. Since it is difficult to understand the plan, most people make mistakes and buy the wrong policy. If you have purchased the wrong endowment policy and want to weed it out from your portfolio, then surely you will find it difficult to calculate the money that you would get while surrendering the policy. There can be other reasons to surrender the Endowment Policy. No matter, what is the reasons behind surrendering your existing endowment plan, there are a variety of options available to you.

Let The Policy Lapse on Its Own

The policy automatically lapses or becomes paid-up once you stop paying the premiums. If you fail to pay the premiums within the grace period, then the policy will lapse automatically. This will hinder you from availing the life insurance coverage and you will not be entitled anymore for any benefits. However, you can revive the policy again, if you want by paying all the due premiums in arrears along with the interests.

Surrendering the Endowment Policy

Before the maturity of the endowment plan, you have the provision to exit from the policy. If you decide to surrender the policy, you will get a certain amount from the insurance provider. This amount is called as surrender value. You will only be eligible for the surrender value once you have completed full three years with the policy and no due premiums should be there during the period of three years. There are three basic factors to determine the surrender value including:

  • Sum Assured or Coverage of the Policy
  • Total Premiums paid as a percentage of the total number of premiums payable till the term of the policy
  • The multiplier factor also called a surrender value factor

The surrender value is calculated in different ways and each insurance provider has its own rules to calculate the surrender value. Usually, the major insurance providers calculate 2 types of surrender value including:

  • Special Surrender Value – It is the paid-up value discounted by the multiplier factor. A special formula is used to calculate the special surrender value (Number of premiums paid/number of premiums payable × Sum Assured + Accumulated Bonus × Surrender Value Factor).  Remember the surrender value is always greater than the guaranteed surrender value and special surrender value. The insurance providers never disclose the surrender value factor at the policy agreement. So, you need to gather this information from the agent or company directly.  
  • Guaranteed Surrender Value – The guaranteed surrender value is 30% of all the premiums paid to date excluding the first year premium. This is the minimum surrender value that is offered to the policyholder while surrendering the policy after three years.

You can Turn the Policy Paid Up

Endowment policies are the type of Life Insurance where the policyholders have the option of not paying the premiums but not terminating or withdrawing the policy. Under this option, the policyholders need to make premium payments for a specified duration (i.e. 3 full years) and thereafter stop the further premium payments and continue till its maturity without making any premium payments. You will enjoy all the benefits covered under the policy, but the sum assured will be decreased to paid-up value. There is a specific method to calculate the paid-up value of sum assured ({Number of Premiums Paid/Number of Premiums Payable} × Sum Assured). The paid-up value will remain the same throughout the term of the policy. You will not be eligible for bonuses if you make the policy paid-up.

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