Khota Paisa

When To Exit ULIP?

Posted in ULIP by khotapaisa on April 17, 2010

Most of us buy & sell ULIPs based on the unsolicited advice of the insurance agent. The agent would convince us to buy a particular ULIP plan (and get 30% commission on it) and after three years come back with a new plan to replace the existing one (earning another 30% or so). The only person who gains through all this is the agent himself.  With the buy & sell going on, most of us want to figure out which ULIP is the best to buy. You would get countless writings on web on this subject. So, for a change, let’s try to figure out when to sell/exit a ULIP plan. Here are some conditions which will justify your exit from ULIP.

Money Crunch – You may need to surrender a ULIP if you have serious money crunch. In addition, you may realise that you can’t afford the premium. In this case you should preferably stop paying ULIP premium instead of surrendering the policy.

Poor Performance – You may like to exit a ULIP if it is consistently performing bad in comparison to the market. Though it is tricky to say when a ULIP qualifies for this, you should generally see the performance of a ULIP for few years before deciding. There could be exceptional cases where in a boom year your ULIP gave a return of 5% while other ULIPs gave a return of 25%. But then be sure about the poor performance of you ULIP before exiting it. Not an easy feat by any measure, I must say.

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34 Responses

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  1. John said, on April 29, 2010 at 10:35 am

    Dear Friend

    Nice to see and get good information on your blog. I would like to have some analysis from you regarding new ICICI ACE plan (ULIP). kindly reply…

    • khotapaisa said, on May 9, 2010 at 11:53 am

      Hi John,
      I have put a post on the ICICI Pru ACE plan. You are welcome to give your feedback.

  2. RKrishna said, on May 7, 2010 at 8:29 am

    Dear Sir,

    I’m really impressed seeing your blog…and came across very valuable information which I didn’t knew…. as I’m working outside India.

    I too need you’re advice regarding retirement plans.
    I’m think of going for LIC Market plus 1….Where the agent say to pay 1.75lac/annum for 16 years and calculated Maturity Value of 96lacs …..@ assured rate of intreste of 15% …if more than 15yrs.I just want to know if this is an indicative or assured as he mention?I’m ready to pay upto 3lacs/annum.Is there any better plan otherthan LIC market plus 1…if yes could you pls give your preference?I appreciate your reply…as I would be coming on short visit to India and would like finalised on something Next month.
    Thanks and Regards,
    Ram

    • khotapaisa said, on May 7, 2010 at 10:25 am

      Dear RKrishna,
      First of all, you need to keep away from this agent of yours. He is LYING to you. There is no guaranteed return in equity based investments like ULIPs (except for the so called guaranteed NAV products). You can expect to get ~12% return (better to be conservative when it is about your hard-earned money). You may get 15% or more as well but then it is all anyone’s guess.
      As for any better plan in market, there are few with lower expenses like ICICI Pru ACE plan. In general, Market Plus I is a a comparatively low expense ULIP.
      Another point which I would like to highlight is the premium. Since you will be paying premium for the next 15-20 years, you need to be comfortable with the premium. It should not make any material change in your cash flow. I am sure it doesn’t in your case but still a piece of advice.
      P.S. – ICICI Pru ACE is not a pension plan. It is a simple ULIP plan which can be used for long term wealth accumulation.

  3. saran said, on May 23, 2010 at 10:06 pm

    Sir,

    I have a money plus ULIP policy, & i have paid for 3 years. But the NAV value seems to be very low. Could you please advice me whether i can continue paying the premium amount this year or its enough & invest the money in some other schemes like NSC OR PPF.

    • khotapaisa said, on May 24, 2010 at 7:05 pm

      Hi Saran,
      Forget about the NAV for now. Keep investing if you can. NAV is like a wave of water which will go up & down. You can’t do anything about it. What goes down, comes up as well. So, any equity investment will fluctuate over time.

  4. anand said, on June 9, 2010 at 5:22 pm

    hai,
    i started bajaj allianz ulip in 2006 and i continued for 03 years. i mainly started for it exemption. Now im not interested in continuing the premiums. what is the best solution for me, when/ whether to surrender or not?

    • khotapaisa said, on June 10, 2010 at 1:40 pm

      Hi Anand,
      You are among the majority of ULIP investors out there. I would suggest you don’t surrender it. Since you can stop paying premium, you stop it. You need to inform the insurance company that you son’t be paying premium. Let the already invested money grow till the policy term.

  5. Shiven said, on June 19, 2010 at 5:40 pm

    I have invested in ICICI life time super ulip policy for 3 years .. I have invested only for tax exemption. Should I surrender the policy now. My annual premium was 25K.

    • khotapaisa said, on June 20, 2010 at 9:32 am

      Hi Shiven,
      If you don’t have money to invest, inform your insurer that you won’t be paying premium anymore. Don’t surrender the policy unless you need this money.

  6. Arun said, on June 26, 2010 at 2:35 pm

    I am investing in TATA AIG INVEST ASSURE FLEXI- and 24975 rs / quarter prem payment ,-15 years the policy term rs 6,99,300 insurance coverage. first yr -18%,2nd yr -17%, 3 rd yr -3% and from 4th yr no prem charges, i have to pay definetely for at least 3 yrs , kindly quote ur valuable opinion how many years have to pay prem wen i can i stop my prem payment? 1 1/2 yrs completed now.
    And also Sbi life(unit plus-2)- equity optimizer fund 50000 rs pa fund management fees 18-25% 2 yrs i have completed , the perfomance is ok not bad. So kindly advice me.

    • khotapaisa said, on June 26, 2010 at 3:51 pm

      Hi Arun,
      Since you have started investing in these ULIP, keep paying the premium for full term. The longer you pay the premium, the less costly it turns out to be. Besides, ULIP starts working for you only if you go for 10 or more years. Since your policy is for 15 year, don’t worry about the return, sensex etc now. Select the fund option in your policy which has max. equity exposure and keep it so for the next 10 years. So sit back & worry not.
      Another way to go is that you pay 3 premiums for both the ULIPs. Then you stop paying premium but don’t surrender the policies. This premium money you can then use to buy a new ULIP policy as ULIPs being sold in market now are much cheaper. But it would need some calculation to figure out if this move will be beneficial for you or not. If you want me to do it, let me know.

      • Arun said, on June 26, 2010 at 10:26 pm

        Thanks a lot, s i will follow ur 2nd advice 3 yrs i will continue bt wont surrender for 15 yrs . And one more you told na some calculations u ll do waz dat? If you do that i ll be really greatfull for u, thanks a lot for ur valuable advices.

      • khotapaisa said, on June 27, 2010 at 10:53 am

        Hi Arun,
        The calculation will tell you whether it is better for you the second advice or not. For the calculation, I need the details of ULIP(s) you have like ULIP name, start date, premium etc. You can mail it across to me. I will get back to you.

  7. Arun said, on June 27, 2010 at 2:09 pm

    TATA AIG INVEST ASSURE FLEXI- and 24975 rs / quarter prem payment ,-15 years the policy term . 1st prem paid on 15/5/2009,
    Sbi life(unit plus-2)- equity optimizer fund 25000 rs per year 1st prem paid on 18-9-2008 this is 20 years sir still u need any details ?

    • khotapaisa said, on June 29, 2010 at 8:31 am

      Hi Arun,
      Since these products have been modified since you bought, I don’t have the exact details of charges applicable to you. As per the current charges, you would be paying less charge if you stop paying premium for these ULIP after 3 years and switch to a low cost ULIP (or funds). You will need to select a ULIP in market once you stop paying premium. You should get only one ULIP in return (if you select to invest in ULIP).

  8. Arun said, on June 29, 2010 at 10:11 am

    Thank u Ji, i hav to planned to continue only TATA ulip and for full term , is it ok?

    • khotapaisa said, on June 29, 2010 at 6:21 pm

      Fine if you really want to continue. BTW, this is costlier of the two ULIPs.

  9. Arun said, on June 29, 2010 at 7:22 pm

    Dear sir i cant get u . Do u say to switch to other ULIP ps elaborate me .

    • khotapaisa said, on June 30, 2010 at 7:20 pm

      It’s fine if you have decided to continue TATA ULIP for full term. Since it is costlier than the other ULIP you have, you should continue with the other ULIP (if you really want to continue with one of these.

  10. Arun said, on June 30, 2010 at 10:40 pm

    Dear sir thank u , u mean to say to continue SBI alone or both, please advice shall i can continue both..

    • khotapaisa said, on July 1, 2010 at 9:12 am

      Hi Arun,
      Let me clear the confusion. Based on cost advantage, it is better if you shift from both the ULIPs to a cheaper one (say ICICI Ace plan). In this case inform your insurers (TAT AIG & SBI) that you don’t want to pay premium after 3 years but want the policies to continue.
      If you want to hold one of the ULIPs (as you mentioned), keep the SBI plan.

  11. Arun said, on July 1, 2010 at 10:09 am

    Dear Sir,

    Thank u, i ll make a new ulip of ICE ace aftr a yr wen 3 rd payment for TATA ends. Thanks a lot….

  12. Chethan S said, on July 8, 2010 at 12:12 pm

    Hi,
    I have a ULIP policy (LifeTime) with ICICI Prulife. I pay a premium of 5000/- pm, which is 60,000 pa. I have been on this for last 5yrs, which means I have invested 3 lacs in last yrs. When I see my fund value now its just 3.5 lacs.
    I’m feeling to withdraw 2.5lacs from ULIP and pay it for my home loan as the gain in ULIP is less than the interest I pay for my home loan…… while continuing my ULIP policy with the remaining it it.
    Please advice me if I’m right in doing so.

    • khotapaisa said, on July 8, 2010 at 9:45 pm

      Hi Chetan,
      It is difficult to comment without the loan details. In theory your idea is fine. But do check out the penalty you may need to pay for withdrawal. You can also check how much you would save by partial prepayment of loan using this calculator.

      • Chethan said, on July 8, 2010 at 11:38 pm

        Hi,
        Thanks for responding to this.
        About the home loan, i have a balance loan of around 20 lacs at 11.5% interest rate. Paying 2.5 lacs would bring down my loan term by 2 1/2 yrs. Thats why I thought in this direction.
        Could you please explain me on what you meant by “do check out the penalty you may need to pay for withdrawal” . Does this mean there is a penalty for partial withdrawals made from ULIP policies?

      • khotapaisa said, on July 11, 2010 at 11:23 am

        Hi Chethan,
        Whether you should pay for loan or not also depends on your current investments etc., I would say you go ahead as per your plan. Reducing 2 1/2 yrs off your loan has much larger impact that just numbers.
        As for ULIP, there might be penalty depending on the ULIP policy. So, check out with your insurance agent.

  13. RAJ said, on July 28, 2010 at 3:38 pm

    Hi,

    I have 2 ULIPS with Bajaj 1) Capital Unit gain premium Rs10,000 2) Unitgain Gold plus Gold premium Rs25,000. I had paid Full 3 years premium for both.

    As of now my account value in both the polices are not even equal to my 3 years premium amount. Now I am in dilemma whether shall I hold those polices or withdraw the amount to book the loss.

    Can you please calculate how much amount will be charged if I hold those without paying further premium.

    Thanks & Regards
    RAJ

  14. Firoz said, on August 16, 2010 at 1:03 pm

    Which ulips r better for long time 20years which give me alot of money which is for my son(1month)24000~36000/anum,so please give me good advice reply soom

    • khotapaisa said, on August 16, 2010 at 5:17 pm

      You should look at Child plans for your son. For a comparison of child plans, you can look at the post on this blog(an older post though). In any case, buy you child ULIP after september only as IRDA is expected to announce some ULIP reelated changes.

  15. Firoz alam said, on September 14, 2010 at 10:55 am

    Thanks for all good advice
    Now i want to know that lic money plus which start from march 2007 _2009 after three years i have some problem,so i stoped the payment because three year locked period Now i continue the premiom ,is it better for me or invest other ulips from sbi because new IRDA RULE FOR All ulips so please give me me good advice
    thanks in advance

  16. srujan said, on September 16, 2010 at 4:28 pm

    Hi

    i have found this topic short n crisp! Nice one
    I’m in need of some advice now. My family has put 50k per yr for three years in SBI Unit plus 2 from june 2007
    Its been already 3yrs now. when i called the office they said we jus get 4000/- more if we withdraw now. thats it. Should we be surrendering looking at its history? and how to know what they said is true?I mean Only 4k after 3 yrs!?

  17. Nag G said, on September 24, 2010 at 1:55 am

    Hi there,

    your blog is interesting. I am 26yr old, still a student doing PhD in Physics. But I have started a ULIP with SBI unit plus-II since 2008 Oct. I choose equity optimiser, that time I guess the NAV is around 9rs, after that during recession it fell to 5rs and now it is around 13rs. But I am always looking at equity option. Do you say is it good option to switch to equity from equity optimiser.

    Second I also started TATA Assure Appex fund since March-2009. By now I paid two premiums and one more to go. Though this is for 10yrs, can you give me your opinion how good is this. because though the market doubled the NAV is not moving.

    Thanks a lot

  18. S.Venkat said, on September 26, 2010 at 3:04 pm

    “Who ever it Concerns”

    BE A WISE INVESTOR

    “‘ULIP / Insurance” Initially all they promised was from SKY to Earth.

    I have two bad experiences with the private Insurance firms.

    First I took an insurance from Tata AIG in the year 2001 for a SUM assured Rs 75000 over a period of 20 years and kept paid for 6 years. Total insurance premium paid was about Rs 6000 * 5 years = Rs 30000 /-. the yield was only about 3.5 %. The insurance premium if paid for all years comes more than the sum assured.

    Finally when I wanted to surrender,then came the Hitch. I was told that I will be gioven only Rs 6500 /- only as there is a clause which does not allow complete surrender value and only of 20% of amount can be given on surrender. Then there was bolt from the blue. I discontiued and I do not Know what to do with that it is tilll date up 26/09/2010.

    Then a second experience. This time after evaluating so many proposals, I took a Unit plus Gold policy from Bajaj Allaianz. Here also they promised sky to Heaven.
    First before entering in to an any Insurance ” DO NOT GET MOVED BY ANY of THEIR ILLUSTRATION”. During a first premium I was asked to sign illustration which I signed with out verifying much, as the advisor was close to us. After some time When I casually going through Insurnace documents, there were good difference of mortatlity charges and other untold charges. Also the surrender clause is heavily punitive that if some on surrenderes policy they will be heavily fined and finally get only less amount of premiums.

    Hence I suggest two measures for those who are interested to go for ptrivate insurance companies.

    1 . DO NOT GET MOVED BY ANY of THEIR ILLUSTRATION. Ask for brochures and other details calculate youself and find out how much portion of maoney is actually invested and what you are going to get when you surrender, matuarity etc.,

    2. The most important one “Having chosen a product ask for someones already insured document even a Xerox Copy and go through the conditions. Here only all get cheated” because of different conditions/clauses/ charges are levied on the insured which would not told the insured so far”.

    Thanks


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