Skip to main content

How to exit high cost ULIPs with the least damage?

IMAGINE this: You are out shopping on a street known for offering the best bargains; after much haggling and deliberation , you pick up a pretty-looking outfit. Then you come across another vendor who is selling a similar dress at a substantially lower price. You feel cheated sand resentful towards the other shopkeeper. Perhaps that's exactly how many unit-linked insurance plan (Ulip) holders who had purchased these policies before September 1, 2010 must have felt once the cap on Ulip charges imposed by the Insurance Regulatory and Development Authority (Irda) came into play. The new regime ensured lower charges which, in turn, could translate into higher returns.


   If you have purchased a Ulip before September 1, or for that matter, wish to exit any life policy because it's been mis-sold or because you are unable to pay the premiums, terminating the policy is not the only option. Insurance policies come with exit options, albeit with some losses in the form of charges.


   The charges (such as premium allocation, policy administration in Ulips) are usually front-loaded, which means a smaller proportion of your premium is invested in the initial years. If you surrender the policy during the initial years, say three years from its inception, the surrender value will amount to roughly 30% of the premiums paid to date. Also, insurance companies leave out the premium paid in the first year while calculating the surrender value, resulting in a lower payout. Hence, you should explore this option only as a damage-control measure and not for booking profits when the market goes up. Here's help on decoding the alternatives available for dealing with an unsatisfactory policy.

Ulips Bought Before Sept 1:

Even if you discover within a year that your policy is unsuitable, it will be wiser to wait till the completion of three policy years before taking a call on making an exit. If the Ulip is surrendered before completion of three policy years, the fund value, after deduction of applicable surrender charges, if any, on the day of surrender will be disinvested and will be paid after completion of three policy years. On the other hand, after three years, the fund value is paid out immediately after deduction of the applicable surrender charges.

The New Regime:

The lock-in period for Ulips has gone up to five years. If you wish to surrender the policy before the completion of five years, the fund value, minus surrender charges applicable as on the day of surrender, will be credited to the discontinued policy fund. The proceeds of the discontinued policy i.e., the surrender value with interest, shall be paid immediately after completion of first five policy years. No surrender charges will be levied as the new Irda guidelines have done away with them for policies that are over five-years old.

Cover Continuance Feature:

Applicable only to Ulips sold before September 1, cover continuance feature comes into play post the lockin period of three years, if you have opted for it. It ensures that the sum assured is payable in the event of the policyholder's demise, even if all the premiums have not been paid. However, remember that the insurance company will continue to deduct charges regularly as per your policy contract. Therefore, the cover will cease to be in force if your policy's fund value/surrender value falls below the minimum amount specified. In such a situation, the policy will get terminated and the fund value in your account will be paid out on maturity.

Paid-Up Policies:

In case of traditional endowment plans, you can also choose to let them become paid-up ones after three years of paying premiums. Your investments until then will be locked in at that level. In a paid-up policy, the sum assured is in proportion to the number of premiums paid. For example, if the policyholder has paid four out of 10 payable premiums, then the life cover payable in case of death is 40% of the original amount. Hence, in case of death/maturity under a paid-up policy, the reduced life cover along with attached bonuses is payable. Traditional plans, typically, are converted into paid-up policies after a minimum number of premiums have been paid. This may range from one to three years, depending on the product and the company.

Make Careful Choices:

Simply study your insurance contract carefully before giving your assent. Life insurance is a long-term contract and you will incur some losses if you exit the policy mid-way. Therefore, make sure you do not go merely by your agent's oral promise. If you have skipped scrutinising the terms and conditions at the time of signing the agreement, use the mandatory 15-day free-look period that is at your disposal once you receive the policy document.

REFUND STATUS



For Ulips bought before Sept 1, 2010

Ø       If you surrender the policy before 3 years, you will get the fund value minus surrender charges after 3 years

Ø       If you exit after 3 years, you will get the fund value immediately after deduction of surrender charges


For Ulips launched after Sept 1, 2010

Ø       If you exit before 5 years, you'll get the money only after 5 years, as these plans have a five-year lock-in

Ø       You can use the cover continuance built into some Ulips bought before Sep 1 to keep the policy alive even if you have stopped paying the premiums

Convert traditional policies into paid-up ones after paying premiums for 3 years to keep the policy going till maturity even if you've not paid the remaining premiums

Popular posts from this blog

Liquidity Adjustment Facility

Liquidity adjustment facility (LAF) is a money market tool used by the central bank of a country (in India it is the Reserve Bank of India ), to infuse funds into the country's banking system when liquidity dries up. Again, in case there is excess liquidity, the central bank uses some tools to help banks manage their surplus liquidity. Usually the RBI uses the repurchase facility (called Repo ) to give short-term loans to banks to meet their temporary liquidity shortage. On the other, hand RBI uses reverse repo facility to help banks park their excess liquidity with it. Banks usually use various securities, which are approved by the RBI, as collateral when they take money from the RBI to meet their short term liquidity requirement     Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara...

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...

NRI from Canada and US Invest in Mutual Funds in India

Investing in Indian mutual funds by NRIs from US and Canada As of December 2016, eight Indian fund houses were accepting investments from US/Canada-based NRIs Most of the Indian mutual fund houses have stopped accepting funds from US and Canada based NRIs due to regulatory restrictions. This is because the Foreign Account Tax Compliance Act (FATCA) makes it compulsory for all financial institutions in the world to report comprehensive details of all transactions involving US/Canada residents, (including non-resident Indians) to the US & Canada Government. Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund

HDFC FOCUSED EQUITY FUND - PLAN A NFO

HDFC FOCUSED EQUITY FUND - PLAN A NFO opens today               Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a missed Call on 94 8300 8300 --------------------------------------------- Invest Mutual Funds Online Invest Any Mutual Fund Online Download Mutual ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now