I’m a 37-year-old married person residing in Mumbai. I have bought an LIC endowment plan, Jeevan Saral, where I pay Rs 17,000 every month.
As per the policy, I need to pay Rs 17,000/month (Rs 2 lakh/year) only for 15 years & then I will be paid Rs 2 lakh per year till 100 years & the surrender value after 15 years is Rs 44 lakh (tax-free) which will increase every year. Additionally, till the 15th year, I’m entitled to Insurance cover (Rs 47 lakh), Accidental cover (Rs 72 lakh) & a Loan of up to Rs 10 lakh with very little interest.
Also, I already have a term insurance of Rs 1 crore and mediclaim of Rs 5 lakh per year. Should I continue investing in LIC or switch to SIP and invest in a large cap or index fund or any debt/flexi-cap fund?
Reply by Santosh Joseph, founder of Refolio Investments and Germinate Investor Services
If you already have Rs 1 crore term cover and Rs 5 lakh health insurance cover, I do not see an additional reason why you should continue another endowment plan. Maybe you are trying to do fixed income investing through the endowment plan but that can be done a lot more efficiently through a debt mutual fund or a fixed income mutual fund.
Considering your age and the number of years you are looking at, one could more convincingly say that an SIP of that magnitude of Rs 17,000 a month saved up over 15-20 years or more could yield significant returns. Even if you do it in a reasonably hybrid fund with a combination of debt and equity which is not as aggressive as a plain vanilla equity fund, you have a chance of outperforming the endowment plan.
If you think you need adequate cover depending on your salary, you could maybe top up on your term cover purely and ensure that you do the SIP and the LIC endowment plan could be skipped or maybe you could also compliment that Rs 17,000 if possible with an additional SIP to ensure that there is a bit of growth element included into your overall portfolio for financial savings.
Currently it is only looking like you are setting yourself money for insurance and it may not take care of your growth needs of the value of your money, while you have to keep in mind that insurance may give you a defined benefit but do not forget about the need for your money to grow and also the time value of money over time is vastly different from what we are reading into right now.
(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)