Many people at the start of their earning years, had got introduced to LIC via some relative/friend of the family who forced them to buy LIC New Jeevan Anand at the start of their careers as investments and for tax-savings.
But once they realize that New Jeevan Anand (Plan No. 915) offers low-returns-&-low-insurance-cover, these policyholders do have questions like –
- Should I surrender my LIC New Jeevan Anand?
- Should I surrender my LIC New Jeevan Anand and take the money to invest in mutual funds
- Will I get more returns if I surrender LIC New Jeevan Anand and instead invest in mutual funds?
- Should I surrender LIC Jeevan Anand, buy a term plan and then invest the money in mutual funds?
It is natural to feel that way as its your hard earned money and with LIC Jeevan Anand, you have entered into a 15-25 year commitment to pay premiums and earn ‘poor returns’ as well as get very small life insurance coverage.
First let’s see why LIC New Jeevan Anand is not a good option for most people.
Let’s take an example from the brochure (link) of the policy provided on LIC website.
Here is the LIC Jeevan Anand (Table 915) illustration which I will explain shortly:
Suppose as a 30-year old, you purchase LIC New Jeevan Anand policy or LIC Plan 915 for 35 years. Your sum assured is Rs 1 lakh. And the annual premium you pay is about Rs 3165 per year. The illustration above assumes that if the policy managed to generate gross returns of 8%, then the maturity value after 35 years will be Rs 2.56 lakh, the net actual returns (IRR return of LIC New Jeevan Anand) will be close to 4.5% only. And the reason for the divergence between gross returns (assumed by LIC) and the actual returns you get is the opaque and high cost structure of LIC endowment plans.
So the low life cover and poor returns (4-5%) is the major reasons why investors of LIC New Jeevan Anand lose faith in the policy and contemplate cancelling or surrendering the policy before maturity.
Another reason is the time value of money. What it means is that what would be the outcome if one decided to cut losses, surrendered the LIC policy and instead invested elsewhere for better returns? Will this switch offer enough returns to compensate for the loss on surrendering and also give inflation beating returns?
So coming to the actual question at hand.
Should I surrender my LIC New Jeevan Anand Policy (2023)?
The Jeevan Anand policy can be surrendered anytime provided 2 full years’ premiums have been paid. If you surrender LIC Jeevan Anand policy before the completion of its full term, you will get back a portion of the money you paid as premiums, after deducting surrender charges. This money is the surrender value.
The very first thing that you should do is first find out what is the right life insurance cover for you, and then purchase it using simple term life insurance plans. It provides a large cover in a cost-effective manner. This is the first, non-negotiable step and should happen before you surrender your LIC Jeevan Anand plan. Do not skip this or think that the employer’s life cover is enough. Buy a term plan immediately.
Now comes the question in the title of this article: Should I Surrender LIC New Jeevan Anand & Instead Invest in Mutual Funds (2023)?
Let’s take an example. Suppose you have a traditional endowment plan like LIC New Jeevan Anand where you are paying an annual premium of Rs 60,000. The policy tenure is 20 years. If you remain invested in this policy and pay premiums regularly for 20 years, then assuming 5-6% maximum returns from these policy, your maturity amount will be about Rs 21-23 lakh after we include all addtions due to LIC Bonus Rates and other factors.
Now lets see what happens if you surrender this traditional plan and invest the premium in equity funds:
- Let’s say you have paid premiums for 2 years and now want to surrender LIC Jeevan Anand policy. In this case, if you surrender, entire Rs 1.2 lakh (two year’s premium) gets lost. Ouch! It hurts, I know. But wait. Now you have freed up Rs 60,000 per year for next 18 years that you can invest elsewhere. If you invest Rs 60,000 yearly (or say Rs 5000 monthly) in a good equity fund giving 11-12% for 18 years, then your mutual fund investment will be worth Rs 34-38 lakh. So you still do better in 18 years of mutual fund investing if you take a loss (by surrendering LIC policy and losing premiums) during the initial years itself.
- Let’s take another case. Suppose you realized a bit late and have already paid premiums for 5 years now want to surrender LIC Jeevan Anand policy when only 15 years of the policy term are left. In this case, if you surrender, you will get back some surrender value. The exact number might be different but it would be less than Rs 1 lakh. Say its Rs 50,000. So in 5 years, you paid a total of Rs 3 lakh and you got back Rs 1 lakh as surrender value. So your total loss is Rs 2 lakh on surrendering. But now you have also freed up Rs 60,000 per year for the next 15 years that you can invest in mutual funds. If you invest this Rs 60,000 yearly (or say Rs 5000 monthly) in good equity funds giving 11-12% for the next 15 years, then your mutual fund investments will grow to Rs 23-25 lakh. So you still do better in 15 years of mutual fund investing if you take a loss (by surrendering LIC policy and losing premiums) after the first 5 years.
That said, now here is what you can do with your LIC New Jeevan Anand policy.
What to Do?
One simple view that many have is to simply make up your mind, cut your losses and surrender the LIC New Jeevan Anand policy. The future premiums saved by surrendering now, can easily earn much better returns even if you invest elsewhere (say in PPF or equity funds). Also, the surrender amount that you get (and that will vary based on when you surrender during your policy tenure) can also be invested properly to recover some of the losses as we saw above in comparison with mutual fund investments.
Another view is that after a few years of paying the premiums, your annual premium is a lot less today than what it was several years ago when compared with your income. So if you are already investing a large amount periodically in suitable assets like equity (via mutual funds) and debt (via EPF, VPF and PPF, NPS, etc.), then increasing it a bit more by using the money freed-up from surrendering the LIC Jeevan Anand policy and using the premium amount will not amount to much.
As a thumb rule, the earlier you surrender or make the LIC Jeevan Anand policy paid up, the better it is. And if you are just few years away from maturity or say you have already completed half the policy term, then you are better off continuing with the plan till its maturity.
Don’t get me wrong. I am in full favour of not mixing insurance and investment. But what is done is done. So if a large part of the policy tenure is already over, you might consider this LIC Jeevan Anand policy as part of your low-return debt portfolio and continue it till maturity. Many people don’t want to take a loss and that is part of their personality. So be it and decide accordingly.
The final option, which may actually suit more people, is to stop paying further premium and make the policy paid up. You can then use the (freed-up) future premiums to invest and get better returns from mutual funds. The LIC policy will become paid up and pay proportionate amount at maturity but you avoid booking losses if that is what worries you most about surrendering the LIC New Jeevan Anand policy.
You can even invest in debt instrument if you don’t want to invest in equity. For instruments like PPF, etc. you will still get better returns than LIC New Jeevan Anand policy.
But whatever you do or don’t, please don’t forget purchasing a term life insurance for yourself (even if you want to purchase LIC’s own LIC New Tech Term, whcih is costlier than manhy other insurers). You owe it your family and hence, make this decision as soon as possible if you don’t have one.
How to Surrender LIC Policy? Or How to Surrender LIC Jeevan Anand Online (2023)?
If you have decided to surrender your LIC policy, then so be it. Now get going. Surrendering LIC Jeevan Anand policy is not possible online nowadays. Also, you need to go to the agent or the servicing LIC branch to surrender your LIC Jeevan Anand.
You will need following documents for Surrendering LIC New Jeevan Anand Policy:
- Original Policy Bond
- Download LIC Policy Surrender Form.
- Cancelled bank cheque or copy of your bank account passbook. Needed as LIC now issues the payment directly to beneficiary bank account.
- If you are not using the surrender form, then instead fill LIC’s NEFT Form, if you are not using the above said Surrender Form and submit the same.
- You will also need original and copies of ID Proof like Aadhaar, PAN or Driving License.
- Once you submit the necessary documents and surrender application, you should get back your surrender amount from LIC New Jeevan Anand in about 10 days time and the amount will be transfered directly to your bank account.
If you have doubts about whether you should surrender or not, then better would be to first take some time out and go through LIC New Jeevan Anand policy documents first. Read in detail about the ‘Surrender’ clause in the detailed ‘Terms and Conditions’ section. It is usually a separate point and should not be difficult to find. The clause would have details on both the things – when can the policy be surrendered (after how many years) and what will be the surrender value. It would have the complete mathematical formulae to calculate the surrender value. In most policies and even LIC New Jeevan Anand, it is the higher of the ‘Guaranteed Surrender Value’ and ‘Special Surrender Value.’ Guaranteed surrender value is usually 30% of the total premiums paid, excluding the premium paid for the first year and the premium paid for any rider. Special surrender value mainly depends on two factors. One is the paid-up value which is the reduced maturity amount or the sum assured in proportion to the total number of years for which the policy has run compared to the original tenure for which the policy was purchased.
In general, it is best to avoid traditional endowment plans like LIC New Jeevan Anand as these neither provide good returns or large life cover. Whether you want to go ahead with surrendering LIC Jeevan Anand in 2023 is something for you to assess based on how much of the policy term is already over and how much do you invest in other assets like mutual fund correctly.
Hopefully, you would have found this writeup on Should you Surrender LIC New Jeevan Anand and invest instead in mutual funds (2023) in India useful. If you have doubts whether it is feasible in your unique case or not, please get in touch with a SEBI registered Investment Advisor.
Disclaimer – The views expressed above should not be considered professional investment advice or advertisement or otherwise. The article is for general educational purposes only. The readers are requested to take into consideration all the risk factors including their financial condition, suitability to risk-return profile and the likes and take professional investment advice before taking any financial decisions or actions which may have financial implications now or in future.