There is no alternative such as "direct" in life insurance

I have few LIC policies, duration 25 to 30 years premium payment. In all these policies I have paid annual premiums for 10 to 15 years. Last year my LIC agent cheated me by a few lakhs in a personal (non LIC related) transaction. Since I do not want to pass on his yearly commissions to him, whenever I pay my future annual premiums, how can I (a) change my agent code (b) should I stop paying my premiums and make my policies as fully paid, Is it recommended by you? (c) can u suggest any solutions, wherein I do not discontinue my premiums and also make my policies as direct (as we do with Mutual fund folios). 
- Anoop Kumar

That is a very interesting query that you have there. First of all you should decide on the basis of taking this decision. You cannot take a decision that is harmful to you simply because it will deny commission to the agent.The correct way to evaluate the three options available to you in respect of each of the policies is as follows :

Option 1 - surrender the policy at the current surrender value.

Option 2 - stop paying premium for the policies and it automatically converts into a paid up policy with the maturity benefits will be much lower than what can be considered at the current stage of the policy. You can work out the per annum return in excel using the rate formula where the surrender value is the current Investment (PV), no ongoing investments (PMT), period of investment is the number of years left for maturity (Nper) and the reduced maturity value as FV.

Option 3: Continue paying premium till maturity and avail the maturity benefit. For this option you can calculate the per annum return in the rate formula of excel by taking the surrender value as the current Investment (PV), regular premium paid as ongoing investments (PMT), period of investment is the number of years left for maturity (Nper) and the assumed maturity value as the FV. In all calculations I am completely ignoring the value of life insurance as it is minuscule anyways.

Due to extremely low surrender values the annual return calculated in this manner for old endowment policies is quite high (normally around 12-14%) for the Option 3 and would be in higher single digits (7-8%) for the Option 2. In effect if you continue to pay the premium on your policy then the return is likely to be around 12-14% whereas if you stop paying premium the return will drop to 6-8%. These calculations would actually need to be done for each case and are just estimates to understand the difference between Option 2 and Option 3. The only advantage of Option 2 is that your agent will not get any further commissions. But you need to decide whether you want to give up a good return just because you do not want the agent to benefit.

Unfortunately there is no alternative such as "direct" in life insurance. Also you cannot change the agent code. So effectively all that you can do is to grin and bear it unless you want to cut your nose to spite your face.

I don't want readers to take the wrong message from this reply. Mixing insurance and investments makes no sense whatsoever. This response is only limited to old policies and on whether it makes sense to continue investing in them. This is not an encouragement to go out and buy new endowment policies, which rarely gives returns in excess of 4-5% p.a.

Harsh Roongta is a chartered accountant and Sebi-registered investment expert

Clear your doubts with regard to investment and spending. Send your queries to personalfinance@dnaindia.net