GOOD TIME TO BOW OUT OF YOUR ENDOWMENT POLICY?

Endowment policies, typically, offer low coverage and returns compared to other insurance and investment products. If you have one, should you surrender it? If so, when is the right time?

- Meghna Maiti

Kolkata-based Subham (name changed), had two endowment insurance policies till recently. His father had bought these in Subham's name around the time he started his first job. Subham, who turned 30 last month, kept paying a premium of ₹50,000 annually for both the policies, with a sum assured of ₹10 lakh in total, till about six years. The policies were for a tenure of 20 years.

Recently, Subham consulted a financial planner for his overall needs. After looking at his portfolio, the planner asked him to consider surrendering his endowment policies. After a careful analysis of the policy details, his financial goals, affordability, and other aspects together with his advisor, Subham decided to surrender the two policies.

Insurance agents sell endowment plans aggressively as they earn high commissions on them. The commission on these endowment plans could be as high as 10-25 per cent or higher in the first year and about 5-7 per cent in the next couple of years. The commission for term plans is about the same range, but since it is a percentage of the premium, the amount earned is lower.

Product wise, endowment plans give low returns and offer low coverage for relatively higher premiums. Nevertheless, like Subham, most of us are tied with such plans bought early in our lives because of the insistence of friends or family. So, what do you do if you already have an endowment plan? Should you continue or surrender them? If yes, at what stage does it make sense to surrender such plans?

The Case For Surrender