Should I Quit LIC and Start Investing in Mutual Funds?
When considering whether to discontinue your Life Insurance Corporation (LIC) policy and invest in mutual funds, several factors come into play. This decision should be well-informed and based on a thorough evaluation of your current policy terms and your future financial goals.
Policy Surrender Considerations
The first step in making this decision is to refer to your policy document, which will contain specific terms and conditions regarding policy surrender. In the majority of cases, you can surrender a policy after 3 years. Since you have been paying premiums for the last 2 years, moving forward for another year before canceling the policy is recommended. However, it's crucial to understand the paid-up value, which is the reduced sum assured after voluntarily discontinuing premiums after paying for 3 years. Typically, after 3 years, you might receive a value between Rs 90,000 to 95,000. To know the exact amount, you should contact your agent or the local branch.
Moving to Mutual Funds
Given the better potential for gains, it's advisable to discontinue your LIC policy and invest the same amount in mutual funds. Mutual funds, especially Equity Linked Savings Schemes (ELSS), offer strong investment opportunities. These funds provide tax benefits under Section 80C for investments made within three years. Additionally, it has been observed that ELSS schemes, when held for 5 years, significantly outperform other financial instruments such as fixed deposits and unit-linked insurance plans (ULIPs).
Understanding the Differences
It's important to recognize that life insurance policies and mutual funds serve different purposes. Life insurance is primarily an expense designed to provide financial protection to your dependents. Investing in mutual funds, on the other hand, is intended to generate returns. Therefore, it is advisable to separate these two aspects of your financial planning.
To ensure you make the right decision, consider the following:
Risk Coverage: If your life insurance policy does not offer adequate risk coverage, it might be advisable to discontinue it. However, if it does provide the necessary coverage, retaining it makes more sense. Financial Goals: Align your investment and insurance plans with your overall financial goals. Ensure that you have a well-rounded approach to both protection and growth. Investment Options: Explore various mutual fund options that align with your risk appetite. Options like ELSS and balanced funds can provide a good combination of return and risk.Conclusion
Whether or not to quit your LIC policy and start investing in mutual funds depends on your individual circumstances. However, based on the potential for better gains, mutual funds offer a compelling case. Make sure to take the time to evaluate your options and seek professional advice if needed. Happy investing!