Should you continue with your endowment insurance policy?

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Shruti is a 38-year-old IT professional. She has been very systematic and disciplined in her savings and investments over the years. However, she feels that her insurance portfolio needs attention. There are endowment policies she bought over five years ago, mostly as a tax-saving tool. Now she finds they are not giving her the coverage she should be getting given the premium she is paying, nor are they offering very high returns. She is convinced that her protection needs can be met more efficiently and that her money will be put to better use, but she is not sure how to go about it. Shruti sees the premium she pays as a drain on her surplus investment. What options are available to her?


Shruti, like many others, finds endowment policies an inefficient way to address protection and investment needs. Its demands are two-fold: first, that it obtain adequate insurance coverage at a competitive price and second, that it be able to make better use of its funds which are currently used to pay the premiums for its policies.

The choices Shruti has with its current policies are to let the policies expire, redeem them, or have them paid out.

If she lets the policy expire by paying no more premiums, she stands to lose at least 50% of the premiums paid over the past five years. Making the policy paid up would imply that cover will continue for a reduced sum assured for the remainder of the term. While Shruti will not need to pay any further premiums, the proportionate sum insured will only be received at policy maturity. This may involve an opportunity cost since the funds will remain locked up and generate low returns instead of being deployed into a better investment product.

Waiver of a policy would mean that part of the premium already paid will be refunded to Shruti. Since Shruti’s policies have been in effect for some time, they would now have a decent cash value which can be immediately invested by her in the products of her choice, with higher return potential. She should also start a periodic investment program with the money she saves on bonuses, so she doesn’t end up spending that amount. Taken together, the same expenses will now give Shruti good insurance coverage as well as investments.

(Content on this page is courtesy of the Center for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)

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