Exit Insurance cum Investment Plans

With so many tempting things to buy, we know how hard it is to step up your savings. But before tightening your belt a few more notches, why not discontinue investments that are imposing a needless burden on you?

You would be surprised at how much cash you can free up just by getting rid of sub-optimal investments that you have made in the past. Signed up for a long-term traditional insurance plan with a hefty premium in a weak moment? Surrender it, even if it entails a loss. What you have already invested is a sunk cost and there's no point in throwing good money after bad. Given that they invest in government securities and debt instruments, returns from traditional insurance plans don't top 5 to 6 per cent even in the best of times; expect even more anaemic returns with falling rates.

Unit-linked insurance plans from insurers are slightly better than traditional products on the cost and returns front. But their lack of transparency, inflexibility and low insurance component are still a big problem. Your money is locked in for five years, preventing you from bailing out if the fund performs poorly. Comparing your ULIP's performance with competing products is a pain, too, given that ULIPs aren't bracketed into well-defined investment categories.

Both performance monitoring and the ability to switch to better options are essential to win with market-linked products. Therefore, surrender all your investment-cum-insurance products and switch to open-end equity or balanced funds for more flexibility. Get a separate term-insurance plan to ensure life cover.