Calculator: Should I continue my endowment policy?
When you buy an endowment policy, you would be looking at satisfying the life insurance as well as the part of the savings/investment aspects of your personal finance portfolio. What if we gave you a means to check if your endowment policy actually gives you the returns you expect in the long term. If it doesn't, it would make better sense for you to surrender your endowment policy and invest the premium amounts thus saved in an alternative investment avenue. This calculator helps you make that decision. This calculator makes a few well-thought-out assumptions: 1. Your endowment premium is split 80:20 into investment and insurance components 2. Even if you surrender your endowment policy, you do not give up insurance cover - instead of insurance cover via an endowment plan, you simply opt for pure insurance cover, such as a term plan. 3. Annual bonus on your endowment policy is 6%, which is a typical industry average 4. Return on investment (ROI) on the funds you invest is 8%, which is a typical risk-free ROI Keeping these assumptions in mind, let's look at how the calculator works. Start off by entering the basic details of your endowment policy:
* Your age
* Sum assured
* Policy start date
* Policy term
* Premium type (Regular, limited, single)
* Premium amount
* Premium mode (Yearly, half-yearly, quarterly, monthly)
* Premium payment term (for the limited premium mode)
* Surrender value on even date The calculator now assumes that if you were to surrender your policy now, You will receive the specified surrender value.
* It invests this amount at the risk-free 8% ROI.
* It then takes 80% of the premium amount you would have paid if you had not surrendered your endowment plan, and invests it at 8% ROI as well. Remember, the calculator only takes 80% of the premium amount; the balance 20% will go towards maintaining your insurance cover, preferably term insurance cover. Result - a two-bar bar chart,
* The bar on the right representing the amount your investments at 8%
* The one on the left representing the payoff on maturity of your endowment plan (sum assured plus all bonuses accrued)
There, your decision is made. If the bar on the right is taller than its counterpart on the left, surrender your endowment policy and invest the premium amount thus saved. If the bar on the left is taller, stick with the policy to the end.
The result page of the calculator also affords you the luxury of tinkering with your expected ROI and the annual bonus on the endowment policy.
The message is succinct - "Surrender your policy!" or "Stick with your policy!" In an age where it is becoming absolutely necessary for you to review your financial portfolio repeatedly over smaller time intervals, this calculator will help you to pin point whether one of your financial savings instruments is doing its job or not. And then, give you a gentle push in the direction that you must go in order to meet your future financial aspirations.
If this calculator starts you off on that goal, we shall consider our job well done.
Note: All calculators and comparators are made based on certain assumptions which may not be true in your case. You should consult your personal financial advisor before taking any decision. Apnaloan disclaims any responsibility for any decision taken based on these calculators and comparators.