How to surrender your life-insurance policy

Life insurance is among the most mis-sold products. Here's which type of life-insurance policies you should have and how to exit the undesirable ones.

Life insurance is an important component of financial planning. It helps secure the livelihood of one's near and dear ones in the case of one's untimely demise. This aspect also inadvertently makes it an emotional product and investors frequently end up buying the wrong type of life insurance. Moreover, they don't have an adequate cover. This results in suboptimal outcomes and if the need for the life cover does arrive, the corpus that one's family members get can also fall short of their requirements.

Broadly, life insurance is of three types: endowment/money-back, unit-linked and term. Value Research has always advised its investors to consider only term plans and avoid the other two. Term plans help you get a large life cover for a small premium and hence they are the best life-insurance product. The other two are insurance-cum-investment products but they provide neither adequately. Plus, they often have high charges and lack transparency. A pure term plan doesn't provide you any capital back. In other terms, the entire premium goes towards providing only life insurance. If a term plan promises part or entire capital back, beware! It's not a pure term plan and hence should be avoided. For investment, you should consider mutual funds, not endowment insurance or unit-linked.

If you already have endowment or unit-linked insurance plans (ULIPS) and want to exit them, here's how you can do so.

How to surrender a ULIP

ULIPS come with a mandatory lock-in period of five years. No matter what, you can only get the money you have already invested/paid as a premium after completing five years. That said, it doesn't mean you must continue paying the premium for the entire five year period. In fact, it can be stopped anytime.

Surrendering ULIPS before five years