How to Cancel LIC Policy?

Read on to learn about how to cancel an LIC policy:

What is LIC Policy Cancellation or Surrender?

LIC Policy Cancellation or surrender refers to ending your policy before its maturity date. While this gives policyholders the flexibility to exit the plan early, it may also reduce the amount they receive compared to the maturity benefit. Before proceeding with LIC Cancellation, it is important to understand the eligibility conditions, surrender rules, and the financial impact of closing your policy early.

Here are the key points to know:

• LIC Policy Cancellation means voluntarily terminating your policy before its maturity, after which the insurance cover and related benefits generally come to an end.

• The amount payable after surrendering the policy is known as the LIC Surrender Value, which depends on factors such as the policy type, premiums paid, and the duration for which the policy has been in force.

• Most regular premium policies become eligible for a surrender value only after the required minimum number of premiums have been paid, as specified in the policy terms.

• If you are exploring LIC Policy Surrender Online, check whether your policy is eligible for online surrender services, as some requests may still require you to visit an LIC branch.

• Although LIC Cancel Policy is an available option, it is generally recommended only when absolutely necessary, as the surrender value is usually lower than the maturity benefit you would receive by continuing the policy until the end of its term.

Note: You can only surrender a policy after paying full premiums for at least 3 years (or 2 years for policies with a term under 10 years). Closing a policy early usually means you receive much less than the total premiums you paid.

Guidelines of LIC for Cancelling a Policy in Free-Look Period

LIC does not recommend the cancellation of its insurance policies. However, if you want to cancel your LIC policy because you do not like its features and benefits, then you must make this decision within 15 days of receiving the policy documents. 

According to LIC, you have the right to cancel the LIC policy within 15 days of receiving the policy documents if you are not satisfied with the LIC terms and conditions. This time is known as the free-look period. In this case:

• You can return the policy stating the reasons for your objection.

• You will get the premium that you have paid for this policy. 

• LIC will deduct the proportionate risk premium for the period you were covered and the expenses incurred from the premium.

What are the Important Considerations for Cancelling an LIC Policy?

Before proceeding with LIC Policy Cancellation, it is important to understand the rules laid down by the Life Insurance Corporation (LIC) of India.

• You can surrender a policy only after you have paid its premiums for at least two consecutive years.

• While calculating the LIC Surrender Value, the premium paid during the first policy year is generally excluded.

• Generally, only 30% of the premium amount paid by you is returned in the form of surrender value. However, the actual LIC Surrender Value may vary depending on the policy type, duration, and LIC's applicable surrender value factors.

• Any kind of additional premiums that you have paid for rider benefits, bonuses, and tax benefits that you have received are excluded at the time of surrender value calculation. 

What Are the Consequences of LIC Policy Cancellation?

Before opting for LIC Policy Cancellation, it is important to understand how it can affect your financial protection and long-term benefits. Here are the key consequences of LIC Cancellation:

• Life insurance coverage ends: Once you complete LIC Policy Cancellation, the contract between you and LIC comes to an end. This means your life cover and all policy benefits cease from the date of surrender.

• You receive only the LIC Surrender Value: Instead of the full maturity benefit, you are paid the LIC Surrender Value, which is generally lower and depends on the policy terms, premiums paid, and the duration for which the policy remained active.  

• Tax benefits may no longer apply: Surrendering your policy can also impact the tax benefits claimed under the Income Tax Act, 1961. Depending on the applicable provisions and policy duration, some tax benefits may be reversed or no longer be available after LIC Policy Cancellation.  

How to Close LIC Policy Online Before Maturity Through LIC Policy Surrender Online?

Once you have made up your mind to cancel your LIC policy,

Step 1: Visit your LIC Branch (the one from where you have purchased your LIC policy) or the office website of LIC

Step 2: Download or request the “Surrender Form” (LIC Form No. 5074) from the LIC website or the LIC branch.

Step 3: Fill the form with all the details about you and your LIC policy.

Step 4: You will be required to submit the following documents:

• Original documents of the policy.

• A canceled cheque. 

• Request to pay the surrender value.

• LIC surrender form number 5074.

• NEFT form of LIC.

• Account details of your bank.

• Your original identity proof such as your Aadhar card, driving license, or PAN card.

• Handwritten letter to LIC that has the reason for policy discontinuation.

Step 5: Submit the completely filled surrender form and all the documents requested to the LIC branch.

Step 6: After approving the request, the surrender value will be transferred to your registered bank account. The processing time for a surrender request can take 7 days to 10 days.

When Can You Surrender/ Cancel a LIC Policy?

Even a life insurance policy issued by LIC has its terms and conditions, and as a policyholder, you are requested to read them very carefully before purchasing a policy. The period after which you can surrender a LIC insurance policy varies from one policy to another. It depends on the premium paying terms and their purchase time. Generally, the minimum period for surrendering a LIC insurance policy depends on the following scenarios:

• Under Regular and Limited Premium Plan: The policy term is taken into consideration under regular and limited premium plans. If the policy term is ten years or less, then the surrender duration of the policy is two years. However, if the LIC policy is of more than ten years, the minimum surrender duration of the policy is two years.

• Under Single Premium Plan: Under this type of LIC insurance plan, you can surrender your life insurance policy in its second year of purchase. However, you cannot surrender your LIC policy in its first year of purchase. 

• Free-Look Period: You can cancel a new policy within 15 days of receiving your policy documents if you disagree with the terms. You will get your premium refunded, minus proportional risk charges and stamp duty.  

• After the Lock-in: For most traditional and endowment plans, you can only surrender the policy after paying premiums for at least two consecutive years.  

Is Canceling LIC Policy Safe?

Canceling an LIC policy (surrendering) is usually not recommended, especially if you are in the early years. You typically lose a significant portion of your premiums paid, forfeit future bonuses, and lose your life cover. However, it can make sense if your goal is to redirect funds from a low-yield traditional policy into higher-return investments.

LIC Resources

FAQs