How to Cancel LIC Policy?

When we talk about life insurance policy, the first name that comes to our mind is LIC. The life insurance products of LIC have gained unparalleled trust by Indians. Some products have even gained so much popularity that people buy them without giving them a second thought. However, sometimes due to various reasons a policyholder has to cancel the LIC policy. In such a case, there are some conditions that you must keep in mind while canceling the policy.

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What is LIC Policy Cancellation or Surrender?

Cancellation or surrender of LIC policy is the termination of the policy before its maturity. The amount that you get when surrendering your LIC policy in the mid-term is termed as surrender value. Generally, with regular life insurance policies, the surrender value is calculated only after you, as an insured, have paid premiums for at least three consecutive years. 

However, canceling or surrendering an insurance policy is not recommended as the surrender value of LIC is comparatively lower than what you get as maturity amount. Moreover, in case of surrender before three years, no surrender value is offered. 

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 all the rights to cancel a LIC policy, before 15 days of receiving the policy documents. If you are not satisfied with the terms and conditions of the LIC policy, you bought. 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.

Guidelines of LIC for Cancelling a Policy

If you have decided to cancel your LIC policy after the free-look period, you must consider the following guidelines issued by the Life Insurance Corporation (LIC) of India:

  • You can surrender a policy only after you have paid its premiums for at least three consecutive years.
  • The premium amount that you have paid for the first year of your LIC policy is excluded at the time of calculating the surrender value.
  • Generally, only 30% of the premium amount paid by you is returned in the form of surrender value. The real percentage of the surrender value can vary as per the policy terms and the premiums that you have paid so far.
  • 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?

Here are some of the implications that you have to bear when you cancel a LIC policy after its free-look period:

  • As the contract between the insured and LIC is revoked, the life cover component will not exist after you have surrendered your policy. Therefore, any advantages that were available for you previously will not be valid. 
  • With a LIC policy, you get multiple tax benefits. Such as you get tax benefits under section 80C of the IT Act, 1961 for having a life insurance policy. These benefits as well are revoked as a cancellation means closure of the existing policy.  

How to Cancel LIC Policy?

Once you have made up your mind to cancel your LIC policy, you should approach the local LIC branch (the one from where you have purchased your LIC policy) and give an application to surrender or cancel it. You can download the surrender form from the official website of the company. Fill this form and submit it to the local branch of LIC along with the surrender or cancellation form, you must 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.

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 term of the policy 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 three 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. 

In a Nutshell!

So, in a nutshell, we can say that by canceling your LIC policy, you lose out on many benefits of the scheme. If you surrender or cancel your LIC policy before a definite period,  you may get a lesser surrender value than the premiums that you have paid against it. Therefore, retaining your LIC policy without allowing it to lapse is the best way not to lose your money as well as your life insurance protection.

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