How to Stop Life Insurance Plans from Being a Headache


Life insurance plans are one of the most preferred investments in our country after bank deposits. Investors are usually quite enthusiastic about starting these investments. However, if we are to believe IRDAI (Insurance Development & Regulatory Authority of India) less than 50% life insurance policies see a fourth year in Indian market. [Source: IRDA Annual Report Persistency Ratios]

Why Discontinue a Life Insurance Policy?

It’s not that discontinuing a life insurance plan is a wise or logical decision after three years. Mostly because only after three premiums your life plan will arrive at a surrender value. Surrender value in the beginning years could be even less than 25% of the total premiums paid.

There is no calculation where a discontinuing policy holder benefits from not paying the premium for another year. There are no benefits of discontinuing a life insurance, except that you can use the premium money somewhere else.

That simply means that while buying:

  • The proposer did not have a clear idea of his/her own future financial condition
  • The Policy requirements were not explained properly

Should You Buy Life Insurance Plans?

Life insurance plans are great investments for safe returns and tax saving. Regular investors can even enjoy the equity market returns over a long investment horizon. ULIPs (Unit Linked Insurance Plans) offer lower expense ratios than ELSS (Equity Linked Saving Scheme) funds, and can even beat their returns over the long term.

Thus, there is no dearth of benefits for those who buy life insurance plans. But all these benefits are only available if you can continue the policies.

Has it ever happened with you as well? Or may be you are finding it difficult to continue your life insurance policy another year?

If your answers are positive, you should consider the following points while investing in another life insurance plan:

1. Invest with a Plan

Investing your savings is one thing. But once you have accumulated responsibilities, like your dependent’s future goals, it is always better to have a plan in place. The investment plan need not consider aspirations, at least in the beginning.

You can start by planning for important and unavoidable goals for your family. For example: School admissions, higher education and marriage of your children, retirement goal for self and spouse, etc.

Remember that a financial plan no matter how great, will never be rigid. You will need to revisit it time to time based on your changing needs and financial health.

The plan will help your investments stay afloat. Most of the investors with a monthly budget often find it difficult to budget annual expenses. A plan can take care of these recurring but thinly spread outflows.

2. Opt for Monthly Investment Option (Monthly Mode)

If you are one of those who budget their expenses monthly, running your investments too in monthly mode will help you in continuing them for a long time. Also, it is easier to maintain auto-debit function in monthly mode.

Auto-debit is important, since it automates a very important part of your financial life. With your investments occurring regularly without your intervention, you can now focus on other areas of life, including increasing your income.

3. Buy Insurance Through an Agent

This is advisable for those who find personal contact more comforting. Although, online investments also give your reminders. But just in case if you miss those reminder e-mails and texts, your policy may simply lapse without you even realising.

Agents are also helpful in continuing your insurance investments through short term credit. While usually interest free and only based on personal rapport, this could be a game changing factor in continuing your investment plans.

However, this feature could be rather rare to find, so better focus on the planning and mode of investments.

4. Invest in Single Premium Policies

Single premium insurance policies are best way to buy insurance if you are buying something like a term plan. Term insurance is one of the essential covers for your family. Plus, it’s rather inexpensive to avail. So why not remove the headache of paying premium every year.

You can simply pay once, and just maintain the policy papers with your important documents. However, this mode is not recommended for ULIP investors looking to benefit from equity funds.

5. Choose a Shorter Premium Payment Term (PPT)

Premium payment term is the number of years you need to pay the premium for the insurance policy. It can be different from the total cover period. For example, a ULIP investor can choose to pay only five annual premiums for a 20 year policy.

While they will not have to pay any premiums after the 5th policy year, their investment will continue to grow. At maturity they will receive the fund value. However, it could be difficult to find an insurance plan with lower than five year PPT (except for single premium plans).

With these cautions, continue your investments, insurance or otherwise, for a long time with great results.

Happy Investing!

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