Q1. I bought a unit-linked insurance plan (ULIP) five years ago. The premium payment term is over for the policy. I do not see a lot of gains in the policy. How do I assess it? Should I surrender the policy now?

Unit-linked insurance plans or ULIP policies are market linked policies and the returns would be based on the market performance. In the short term it is likely that the policy is impacted by market volatility. However, historical data suggests that the impact of market volatility gets evened out over the long term.

Before you decide to surrender your ULIP policy, do a fair assessment. You can consider the below factors for assessing:

1. Review Performance: Check how your ULIP has performed compared to market benchmarks.
2. Assess Charges: Understand the fees associated with your ULIP, including surrender charges.
3. Evaluate Goals: Consider if the ULIP still aligns with your financial objectives.
4. Calculate Surrender Value: Get the surrender value from your insurer and compare it with
   the premiums paid.
5. Explore Alternatives: Look into other investment options that may offer better returns and lower fees.

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Q3. I am 35 years old and bought a life insurance policy about two years ago. I would like to know how the insurers determine the surrender value, as some people have told me it is better to invest in other instruments.

Ans. Life insurance policies are designed for the long term. Their objective is to enable you to save for your financial goals in a regular, disciplined manner. Based on this objective, the policies are designed to provide higher benefits over the long term. An early exit may offer fewer benefits. The surrender value of a life insurance policy is calculated based on factors like premiums paid, policy term, policy type, investment performance (for ULIPs), charges deducted, and bonuses.

Whether to invest elsewhere depends on factors like financial goals and risk tolerance. You can evaluate whether purchasing a new policy by surrendering an existing one is better than continuing the existing policy until maturity. It is suggested that you consult a financial advisor to assess your situation and explore options tailored to your needs, weighing the pros and cons of surrendering the policy.

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The author is the head of products and segments at HDFC Life.