What happens, if you want to exit from endowment policy?

Let’s see what happens if you want to get out of the endowment  policy after purchasing this. It is called Surrender. If you have decided to exit from this policy after paying the first year’s premium, you will lose the premium paid in the first year. If you stop paying premium after paying for 2 years, then also you will lose the 2 years premium paid. But, if you surrender after paying 3 years premium, you will get a surrender value.

Let’s see how much the surrender value in the example discussed above is.
In 3 years, you have paid 3 x 60,000 = 1, 80,000.
Now you have decided to get out of this policy and asking for the surrender value.

The insurance company will pay you 30% of the premium paid. So you will get 30% of 1, 80,000, which is 54,000.

Pay 1,80, 000 and get 54,000 after 3 years! This is a big trap. So be careful before purchasing such a endowment policy.

Retention Ratio of Policies

As per the latest report on life insurance policies, less than 50% of the policies continue for more than 5 years. This means more than 50% of the policies are lapsed or surrendered in the first 5 years. In all these cases, the policy holders lost money. So be careful before purchasing such policies.

Who benefits from this policy?

When you are paying 60,000 as the first year premium, your agent is getting around 35% of it as commission. 21,000/- is going to his pocket. His immediate manager is getting an incentive on this premium. Above this manager, there are many levels of seniors who also benefit from this by way of incentives in cash and kind. Then there are various administrative and promotional expenses. In most cases the entire first year premium is spent by the insurance company!

From the second year, the commission is around 5%. The agent is getting 3,000/- every year as long as you pay the premium. In this 20-year policy, the agent is getting around 78,000/- in total as commission in addition to various incentives.

This is the reason why agents and banks are trying to sell insurance policies. This also explains why you are getting poor returns from such policies.

Next: Money Back Policy & Children Policies, stay tuned