Should one get rid of insurance taken as investments

We all say you should take an insurance policy for insurance purposes only and not as investment. But Insurance companies come with different types of policies. So that means every insurance policy must be there for some purpose. Money-back policies give out periodic payments. Endowment policies help build a tax-free amount. Ulips help in wealth creation. So the first thing to do is find out if the insurance policy will help you taking your targets into account.

As we grow and take risks, usually our income will keep rising, so in this case the Money-back policy would be of no use, since the amount received at the end of the period would be very small compared to the investment made. Same with endowment policy, if you want guaranteed returns, put it in a Fixed deposit, which would give better returns even after tax.

Ulip’s would help but then it should be at a younger age and as you grow you could use your switch option and move the money to debt.

An insurance policy should ideally cover a person till he is earning and the amount of insurance should ideally be enough to help the persons dependent on him/her. This is because if something happens to you the financial dependency will go away from the persons dependent on you. Therefore if there are policies which mature before your retirement age they should be removed or extended till retirement age.

If circumstances have changed and you cannot afford the premium, you should discontinue the policy, because instead of helping you the policy is hurting you financially. Since insurance premium is like a regular liability. If you have built enough assets then there is no need for insurance policy.

The easiest way of getting rid of an unsuitable insurance plan is to stop paying the premium. This should be the preferred option if the insurance policy was just taken. It is better to discontinuing the policy with a small loss instead of continuing with the mistake just because you might lose some money. This is similar to the stock market, do a stop loss.

If you have paid a premium for 3 years or more, you can surrender the policy and get some money back. When you surrender the policy you lose the insurance cover, so if you want to continue with the insurance cover you can convert the policy to a paid-up plan.

A better alternative to surrendering your insurance policy and losing the life cover is to turn it into a paid-up policy. As in the case of surrendering, this is possible only if three years' premium has been paid. But if only some years are left it would make more sense to continue with the policy.