Suppose you have bought a policy from one of the life insurance companies (classic endowment) and wish to surrender it, what do you do?
Go to the life insurance company and say “i wish to surrender this plan please”. They then follow a very complicated path and tell you how much they will pay you. This is called surrender value.
Beware this is a black box and if you are not an actuary, do not even attempt to understand it. To make things simple let us accept that this could be a ridiculously low figure. If you have paid Rs. 100,000 as a premium for say 6 years (it is a 27 year plan) ..you think you should get back at least Rs. 6L, right?
Wrong, completely wrong. They are perfectly capable of telling you ..’sorry we will pay you only Rs. 4.3 lakhs. Sometimes even lower. No questions can be asked, because the company has a black box.
If you are not happy with the price you should be able to go and sell it in the market, right (Viaticals)? No. You cannot sell, it can only be given back to the issuer (welcome to the protected world of life insurance).
In the UK and USA you could just walk to a life broker and sell the policy. I in my personal capacity may be willing to pay Rs. 5.36L – and keep the policy. I may have to pay the premium for the next 5 years..and if this person kicks the bucket..well you make money quickly.
India had no competition in Life Insurance, so the great indian insurance company made sure that no viaticals market is created. Vaat to apni lagi na!! However now you see the smart Indian private sector companies also making crores in surrendered plans…will Irda look into this please? read on…
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