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Right after my graduation in 2008, I started a job. One of my friend was a policy agent at that time. He somehow convinced me to buy a life insurance policy from him and I did without thinking much (as I thought about helping a friend rather than any long term investment). Since then (Aug 2009), I have been making payments to this policy but I really do not know whether it is a good policy for me or not.

Only things I know are as follows:

  1. Sum assured: INR 4,42,000
  2. Enhanced sum assured - INR 200,000
  3. Annual premium INR 30,900

Fund details:

  1. Policy fund value - INR 141627.79
  2. NAV - 43.6903
  3. No of units - 3241

I searched online and tried to understand what is this thing I am putting money into. But could not understand much. I do not even know whether this is a term or whole-of-life insurance policy. Other than the fund details, I could not understand much. I know I should have thought before getting into this thing, but since I am already in, could some one explain if I should continue investing in this policy?

Please let me know if I should provide more information. P.S.: Currently I am single.

  • 2
    Friends don't sell friends this type of policy. – JoeTaxpayer Jun 16 '14 at 16:55
  • I agree. Since then I never took any financial decision 'for a friend'. – tempusfugit Jun 16 '14 at 17:23
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From the details you have given it looks like you have "Unit Linked" insurance policy. In such policies a part of the premium goes towards the "Insurance", the balance is invested into "Mutual Funds / stock Market".

It is generally not advisable to have "Unit Linked" policy compared to pure "Term" policy. Generally the amount of fees charged for "Unit Linked" policy is high and hence the returns to the end user are low. i.e. if you buy a "Term" insurance for the same sum insured and invest on your own the balance in any "Mutual Fund" you will end up making more that what you are getting now.

Typically these policies have 3 years lock-in period. As you have purchased this in 2008, you can cancel the policy without any penalties. This will save you future premium and you can buy a term insurance and invest the difference yourself.

Note the unit linked policy is useful for people who do not invest on their own and this is a good way to be forced into saving than nothing else.

  • That explains a lot. There have been consistent deductions from my fund value under the name 'fund charges'. Now, I knew there will be some charges, but they are very high. And the 3 year lock-in period is a very good idea. I will call them and confirm. Thanks! – tempusfugit Jun 16 '14 at 17:26
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First off, I would question why do you need a LI policy? While you may be single are you supporting anyone? If not, and you have some money saved to cover a funeral; or, your next of kin would be able to pay for final expenses then you probably don't have a need.

In, general, LI is a bad investment vehicle. I do not know hardly anything about the Indian personal finance picture, but here in the US, agents tout LI as a wonderful investment. This can be translated as they make large commissions on such products.

Here in the US one is far better off buying a term product, and investing money elsewhere. I image it is similar in India.

Next time if you want to help a friend, listen to his sales presentation, give some feedback, and hand him some cash. It is a lot cheaper in the long run.

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I would like to add to the answer provided by Dheer. I think under some ULIPs you need not pay premium after 3 years and you can take the money back after 5 years (something like that, read your policy statement of course). Since the money is invested in Stock markets and since generally people say the longer money stays in stocks, the better; you can keep the money with them without taking it back and without paying any further premium. That way, whatever you paid will be invested and you can get it back later when you feel you will make a profit.

  • While generally accurate, the huge fees charged by such vehicles mean you would almost always be far better withdrawing the money and investing it yourself. There's no reason to pay the huge overhead just to have them invest the money in the stock market when you can easily do so yourself. – ChrisInEdmonton Nov 4 '14 at 13:38

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