Is It Wise To Surrender an Endowment Plan?

 It might so happen that you eventually found your endowment plan a liability rather than an asset. And the reasons could be many—maybe the policy is wrong, better tax saving instruments are available, and paying the premiums has become problematic due to financial woes. 

 

Whatever the reason might be, there is an effective way to get rid of your endowment policy. And the way is: surrendering it. 

What is an Endowment Plan?

 

Before exploring the surrendering process and the rationality associated with it, let us first understand what an endowment plan is all about.

 

An endowment plan is an insurance policy that guarantees a lump sum amount to the policyholder at the maturity period. But the policyholder has to survive until the maturity of the policy to receive the lump sum amount.  

 

However, some insurance companies have incorporated some modifications to the plan. They pay out the lump sum amount in the event of critical emergencies, like major accidents or severe illnesses.

 

An endowment life insurance plan is a specialized insurance plan that bears the combined features of term life insurance with a savings plan. You can choose an amount to save each month. And when the policy matures you will get an endowment amount.

 

The Downsides of an Endowment Plan

 

The policyholder will receive a lump sum amount at the maturity of an endowment policy. But, the benefit is not flawless. 

 

The fact is, the return that the policyholder will get will be an average amount. Moreover, the premiums will not elicit any good returns in the long term. 

 

Surrendering the Plan

 

If you find paying premiums to your endowment plan is not making much sense, you can get rid of the payments by surrendering the policy. 

 

But, do not surrender the plan in haste. Instead, assess your idea of surrendering deeply because the policy will terminate once you surrender the plan. You must ensure yourself that you will not regret later after surrendering your best endowment plan. 

 

When you surrender your endowment plan, you will receive an amount, called the surrender value.

 

The amount will depend upon the number of years you paid premiums to the policy. 

 

If you started the endowment policy not very long ago, you will receive around 30 percent of the total premium you paid. Likewise, if you maintain your policy for a longer duration, you will get approximately 75 percent of the paid premium. However, the amount differs among insurance companies.

 

Is Surrendering the Best Option?

 

Now, coming to the moot point: is it wise to surrender the policy because it is the best option?

 

Surrendering is wise if you can use the amount you receive to fund better investments. And if the maturity period is near, then surrendering makes no sense.

 

You can convert the endowment plan into a paid up plan. When you do not close the policy but stop paying the premiums, the policy becomes paid up. However, the conversion is possible only when you pay premiums for at least three years.

 

You will receive an amount, called the paid up amount, at the maturity of the policy. But that will be lesser than the sum assured.

 

Conclusion

 

Surrendering can be a wise decision if you can utilize the money you receive in a more profitable investment. Or else, it is wise to keep the policy running while freeing you from paying the premiums by converting the policy into a paid up plan.