The surrender value of an LIC policy refers to the amount payable to the policyholder on premature termination of the policy. After holding an LIC policy for four years, you can expect to receive a cash value in return if you decide to surrender it. However, this amount will be less than the total premiums paid due to deductions for administrative costs and initial fees associated with the policy.
Read moreWhen considering surrendering an LIC policy, it's crucial to check the Surrender Value. This value is the amount the policyholder receives upon terminating the policy before maturity due to dissatisfaction with its features, benefits, or terms and conditions. Generally, policyholders can surrender their LIC policy after paying premiums for 3 years.
Generally, there are two types of surrender values available in such cases:
Special Surrender Value
If the premiums have been paid regularly for 3 years but less than 4 years by the policyholder, then 80 percent of the complete sum assured amount (maturity benefit) is provided by LIC to the life assured. If, in case, the insurance holder has paid premiums for more than 4 years and less than 5 years, then 90% of the complete maturity sum is provided. If the policyholder pays premiums for more than 5 years, they receive 100% of the sum assured (maturity amount).
Guaranteed Surrender Value
As stated above, the policyholder can surrender the LIC policy after 3 years, provided the policy has been in force for at least 3 years. The LIC surrender value is 30% of the paid premium amount. In this, the premium paid in the first year of the policy and the premium paid towards term rider and accident benefits are not included.
Loss of Life Cover: Surrendering a LIC policy means losing the life cover provided. This leaves the policyholder's family financially at risk in case of the policyholder's death, which defeats the purpose of securing their future.
Increased Premiums in case of Reinvestment: If you decide to get another policy later, you might have to pay more because you'll be older and considered at higher risk.
Loss of Accrued Bonuses: LIC policies often accumulate bonuses over time, which enhance the policy's value. Surrendering the policy before maturity usually results in losing these accrued bonuses, reducing the overall payout significantly.
Penalties for Early Surrender: LIC policies often have a minimum lock-in period, typically three years. Surrendering the policy before this period can result in the forfeiture of any surrender value accrued up to that point, meaning the policyholder receives nothing.
Tax Implications: Surrendering an LIC policy may have tax implications, notably if the surrender value received exceeds the premiums paid. This could lead to unexpected tax liabilities for the policyholder.
No Surrender Value in Term Plans: LIC term insurance plans typically do not provide a surrender value. However, an Unexpired Risk Premium Value may be applicable in certain situations. This depends on factors such as the type of premium payment—whether it is Regular, Single, or Limited—and the current status of the policy, whether active or lapsed.
One needs to follow the steps below to surrender their LIC Policy:
Step 1: Visit your nearest LIC branch or log in to LIC’s official website.
Step 2: Download or obtain the "Surrender Discharge Voucher" (LIC Form No. 5074) from LIC.
Step 3: Complete the form to terminate the policy and withdraw the surrender value.
Step 4: Submit the filled form to LIC along with the required documents.
Step 5: Once LIC approves the form, the surrender process begins. The surrender value will be transferred to your registered bank account within 7-10 days.
The policyholder is required to submit the following documents at the time of surrendering the policy:
The original copy of the policy bond
Form No. 5074, i.e., LIC policy Surrender form
Canceled cheque from the policyholder’s registered bank
ID proofs such as Aadhar Card, PAN Card
Fill LIC NEFT Form if form 5074 is not being used.
LIC Surrender value can be computed using a Surrender value calculator that helps you get the approximate figures of your Surrendered policy. You can calculate your LIC Surrender value immediately by providing basic information about your policy.
The reduced paid-up option in life insurance allows policyholders to convert their existing policy into a paid-up policy with a reduced death benefit, using the accumulated cash value to cover premiums. This maintains some level of life insurance coverage without further premium payments. On the other hand, surrendering a life insurance policy involves terminating it in exchange for the current cash value, ceasing all future benefits and coverage.
The decision between these options depends on whether one prefers to retain some coverage (via reduced paid-up) or access cash immediately (via surrender).
Parameters | Surrendering Policy | Reduced Paid-Up Option |
Continuation of Coverage | Coverage ends; no further benefits. | Coverage continues with a reduced death benefit. |
Use of Accumulated Cash Value | Receives cash value immediately. | Uses cash value to maintain reduced coverage. |
Premium Payments | No further premiums required. | No further premiums required; policy becomes paid-up. |
Financial Implications | Immediate access to cash value; forfeits future benefits. | Maintains some insurance protection; beneficiaries receive reduced death benefit. |
Surrendering an LIC policy should be carefully considered due to potential financial implications such as loss of accumulated bonuses and reduced life cover. While the surrender value after four years is generally low, it may not compensate for the premiums paid. Exploring options like the reduced paid-up policy could provide a balance between maintaining coverage and accessing some financial benefits. Always evaluate personal circumstances and future needs before making a decision.
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*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^Trad plans with a premium above 5 lakhs would be taxed as per applicable tax slabs post 31st march 2023
+Returns Since Inception of LIC Growth Fund
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
++Returns are 10 years returns of Nifty 100 Index benchmark
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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