How to get rid of bad life insurance plans in India?

How to get rid of bad life insurance plans in IndiaHow to get rid of bad life insurance plans in India?

One of the important aspects of the individual personal financial plan is taking life insurance plans. However, many of us would have taken life insurance plans by force from friends or relatives or agents without looking into the details of the plan. In case you found that you have taken a bad life insurance plan or un-wanted plans and wondering what should you do now, this article is for you. In this article, I would elaborate on how we can assess whether a life insurance is good or bad and how one can get rid of a bad life insurance plan.

How to assess whether you have a bad life insurance plan?

1) Premium Vs insurance coverage

Is your insurance plan is providing adequate coverage on the premiums paid by you. Generally, life insurance coverage should be 40 times of annual premiums paid. E.g. if you are paying Rs 10,000 per annum as life insurance premium, it should cover a minimum of Rs 4 Lakhs of risk coverage (Rs 10,000 x 40 times). If not, you are paying high premiums and it is time for you to review such plans.

2) Adequate life insurance coverage

What I mean here is, whether you have adequate life insurance coverage for your family in case of your unfortunate death. There are various ways where you can find how much life insurance you would need. If you do not have adequate life insurance coverage, I would suggest you to re-look such life insurance plans.

3) Spend Max of 10% of savings as premiums

I have seen many readers commenting on this blog indicating that their entire savings, they are investing/considered money back plans/endowment insurance plans. They have little to invest in other investment options. You should spend only < 10% of your savings on life insurance premiums. E..g. If Mr.X is earning Rs 5 Lakhs as income and saving Rs 2 Lakhs. He should spend a maximum of Rs 20,000 per annum on  life insurance premiums and have adequate life insurance coverage.

4) Review life insurance plans which have maturity prior to retirement

Generally, we should consider life insurance plans which covers till retirement so that you can meet all your financial goals and secure your family by the time you retire. If you have any life insurance policy which matures prior to retirement, they can pose a risk in your financial plan and you should review them and exit appropriately.

5) Are you getting good returns

In case of a term insurance plan, there is no maturity amount, hence there are no returns. However, in case of money back-plans/endowment plans, you would get the maturity amount which consists of normal return + bonuses, etc., Generally, all such plans would provide 5% to 7% annualized returns on the premiums paid. While it would be difficult to compute the exact returns, you can consider the maturity amount and past bonus paid and compute the returns. If you have low returns compared to other life insurance plans, it is time for you to review your life insurance plan and exit.

How to get rid of bad life insurance plans in India?

There are a few ways on how to handle such bad life insurance plans and get rid of them. Here are a few tips.

1) Surrender the policy

If you have reviewed your life insurance plan and thought that it is not that good policy, you can surrender the life insurance plan. However, you may get only 30% of your life insurance premiums paid. Recently, IRDA has issued several new guidelines on surrender of the policy. As per the new guidelines, you would get 30% of premiums in the first 3 years (excl 1st year) and from 4th year you can get up to 50% of premiums paid and later at 90% of premiums paid. While you would still loose premiums if you surrender policies, there is no point in paying for 20 or 30 years continuously for such bad policies and losing your hard earned money.

2) Convert Endowment plans to paid-up policy

Many of us are not aware that you can convert endowment life insurance plans to paid-up policies. Let me explain with an example. Mr. Akhil took an endowment policy for a sum assured of Rs 18 Lakhs for 30 years. He paid premiums for 5 years. Now if he feels that it is bad policy, he can convert this endowment plan to paid-up policy after 5 years. Sum assured would be reduced by 6 times (30 years / 5 years) i.e. to Rs 3 Lakhs (Rs 18 Lakhs / 6 times). Now, Mr. Akhil need not pay life insurance premiums from 6 to 30 year period and he would continue to get risk coverage for sum assured of Rs 3 Lakhs. However, he would not get any bonuses in the future.

Also Read: Is Critical Illness Coverage is important in Health Insurance?

3) Let such policy lapse

In case you feel that you may not get any premiums back or they are very low for you to chase and close it, you can leave such policies as is without making any further payment of premiums and let them lapse. However, one should be cautious of this as you would be losing all premiums paid as you are not surrendering the policy.

Conclusion: You are paying your hard earned money for premiums of life insurance plans. I feel, one should not continue bad life insurance plans. You should review whether they are really bad or whether do you really need them. If not, consider exiting them with available options. There is no point in keep continuing to pay high premiums for low risk coverage.

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How to get rid of bad life insurance plans in India?

Suresh KP


  1. I believe awareness and alertness on the consumer’s side can help a lot to prevent such plans, because we are they people who suffer most from bad and non productive insurance plans.
    I have bought tata aia life’s money back Insurance plan this plan gives you the flexibility to choose from various term options to meet your financial commitments with the advantage of paying for only half the term.

  2. Hello Suresh, i’ve taken Max Life Life Partner Plus Limited Pay 5 Endowment to Age 75 Plan.. 5 years back. Annual premium is 50k annually.
    And i’ve taken a same plan for my wife with a premium of 25 k annually. i don’t find this plan useful.when i spoke to call centre i was told that i cannot do paid up of this policy and surrender value in my case comes to 87 k.. kindly suggest what to do..
    Regards, Jai

    1. Hi Jai, Assess how much you paid vs how much you would get when you surrender. If you want to fore-go some money and secure future payments and invest them in some mutual funds or any other options, you can do that.

  3. Dear sir,
    I have following policies
    Prem- 48040- sum Ass. 10lakhs, Jeevan Saral, 21 year, Date- 28/1/11
    Prem- 9713- sum Ass- 2 Lakhs, Whole life, 21 year, Date- 28/4/10
    Prem-15734- Sum As- New Bima Gold 20 year date- 28/4/10
    I am aged 51, how do I assess that what is bad and good. Thanks for helping
    regards, Shanker

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