Surrendering LIC Policy Before Maturity

Therefore, before surrendering, it is advisable to review the LIC terms and conditions thoroughly. Read on to know more.

What Is Surrendering Of LIC Policy?

Surrendering an LIC policy refers to voluntarily terminating the policy before its maturity. When policyholders surrender their policy, they terminate the agreement with LIC, forfeiting all future benefits, including life cover and maturity payouts. Once surrendered, the life cover stops immediately, and the policy cannot be revived.

LIC policy surrender is not recommended since the Surrender Value of LIC policy will always be substantially lower than the original benefits promised. This applies to various plans, including endowment, whole life, and even term insurance, in certain cases where specific LIC terms and conditions are met.

When Can You Surrender The LIC Policy?

If you want to discontinue your LIC policy, and are looking for “how to close LIC policy online”, surrendering it is the way out. However, certain LIC terms and conditions should be met for a seamless surrender. LIC policy surrender can be done in the following cases:

• For single premium plans, you can surrender in the second year.

• For limited and regular premium plans:

  • Policies 10 years or less can be surrendered after 2 years.

  • Policies of more than 10 years can be surrendered after 3 years.

What is Surrender Value of LIC Policy?

The LIC surrender value refers to the amount of money a policyholder will receive if they decide to terminate or surrender their policy before its maturity date. This value is calculated based on various factors such as the total premiums paid, the policy's duration, any bonuses accrued, and deductions for surrender charges (if applicable). It represents the cash value that the policyholder can receive upon surrendering the policy before its original term ends. Customers often seek information on how to close LIC policy when their financial goals change. Knowing about the LIC Surrender Value beforehand, they can make better decisions.

Types of Surrender Value

Surrender value is determined by LIC policy surrender processing time. There are 2 types of surrenders available. Let’s check them out:

• Guaranteed Surrender Value (GSV)
  Under the guaranteed surrender value, the policyholder can surrender their policy only after the completion of 2 years. This means the premium must be paid for a minimum period of 2 years. If you surrender after 2 years, the surrender value will be around 30% of the premiums paid. However, this excludes the premium paid in the first year and the premiums paid towards accidental benefit riders.
  So, the later the policy is surrendered, the higher the LIC surrender value will be.

• Special Surrender Value (SSV)
  Unlike the guaranteed amount, the special surrender value is dynamic and usually higher, depending on the policy term, bonuses accrued, and the number of premiums paid.

The maturity sum assured will be calculated based on how much premiums have been paid. It will be calculated as:
(Original sum assured *(number of premiums paid/ number of premium payable) + total bonus received) * surrender value factor.
Knowing how to calculate surrender value of LIC policy can help you estimate your returns before early termination.

How Is LIC Surrender Value Calculated? 

The surrender value of LIC Policy can be calculated only after the policyholder has paid the premiums continuously for 3 years. Therefore, if you decide to surrender your policy in the first 2 years, you will receive no incentive from LIC.

The LIC surrender value of the policy can be calculated as:

{Basic sum assured (number of premiums paid/ total number of premiums payable) plus total bonus received} multiplied by X, where X is the surrender value factor.

Sample Illustration of LIC Surrender Value Calculation

Let us understand how LIC Surrender Value calculation through an example. 

A 35-year old individual wants to surrender his LIC Jeevan Anand policy after 3 years of policy purchase. The policy had a sum assured of Rs 3 lakhs with an annual premium of Rs 11,537 and a policy term of 35 years. Using the LIC calculator as the LIC surrender value calculator, he calculates his the amount he will receive on surrender. 

Based on the premiums paid till surrender, i.e., Rs 33,120, his Guaranteed Surrender Value will be Rs 11,592. Assuming non-guaranteed additions (bonuses) at 8%, the GSV will be Rs 12,132 and the SSV will be Rs 7,799.

Thus, the higher of both amounts, Rs 12132 will be paid to him as the LIC Surrender Value. 

What is the Eligibility and Timing of Surrendering LIC Policy?

You can surrender most LIC policies after completing one year, provided the premiums for that year are paid. However, to receive a Guaranteed Surrender Value (GSV), premiums must usually be paid for at least 2 to 3 years. A Special Surrender Value (SSV) may be available after one year of paid premiums. In the case of ULIPs, surrender is allowed during the 5-year lock-in period, but the fund value can only be withdrawn after the lock-in ends, and surrender charges may apply. On the other hand, pure term plans generally do not offer any surrender value.

Note:
GSV (Guaranteed Surrender Value): Assured – A fixed minimum amount you are guaranteed to receive when surrendering the policy after paying premiums for the required years. SSV (Special Surrender Value): Variable – A flexible amount determined by the insurer, usually higher than GSV, and depends on factors like policy term, sum assured, and bonuses.

LIC Policy Surrender Processing Time 

The processing time for surrendering an LIC policy typically takes a few weeks, but it may vary based on factors such as completeness and the policy type of the surrender request. After submitting the important documents, it generally takes 7-10 working days to process the surrender value, and funds will be transferred to the registered bank account. 

Surrender Process and Timeline for LIC Policies

The surrender process begins with initial verification of documents, which can take some time. After submitting the LIC policy surrender form and once the surrender value is approved, the amount is typically credited to the policyholder’s bank account within 7–10 working days.

Key factors influencing the LIC Policy Surrender Processing timeline include:

• Policy type, as surrender rules vary by plan

• Accuracy of submitted documents, which can speed up the process

• LIC’s internal workflow and approvals

LIC policies usually become eligible for surrender only after 2–3 years of premium payments. If premiums are stopped after this period, the policy may attain paid-up status rather than being immediately surrendered.

Online surrender is also available and generally follows the same steps and timelines as the offline process.

What is Surrender Value Factor in LIC?

Considering how to surrender LIC policy, you must first know about the surrender value factor. In Life Insurance Corporation of India, the surrender value factor (SVF) is a percentage that helps calculate how much money you’ll receive if you surrender your LIC policy before it matures. Typically, this surrender value is about 30% of the total premiums paid, but it does not include the first year's premium or any extra premiums for riders.

The surrender value factor (SVF) increases over time, meaning that the longer you keep paying premiums, the more money you'll get if you decide to surrender your LIC policy. If you’re wondering how to surrender LIC policy, the SVF is key in determining the amount you’ll receive.

How Does It Work?

Here is how the Surrender Value Factor (SVF) works:

• Early Years: The SVF is typically zero for the first few years, so if you surrender your LIC policy within the first 3 years, you won’t get much of the money you’ve paid into the policy.

• As Time Passes: The longer you keep the policy, the higher the surrender value factor. Over time, the percentage increases, and you’ll get a larger amount when you surrender LIC policy.

• After Several Years: After paying premiums for a longer period, the SVF often stabilizes around 90% of your policy’s guaranteed value and any accumulated bonuses.

What is the LIC Surrender Value Calculator?

The LIC surrender value calculator is the answer to “how to calculate surrender value of LIC policy”. LIC Surrender Value Calculator is an online tool that helps you estimate how much you will receive if you surrender your LIC policy early. This calculator considers various factors, such as the policy type, premiums paid, and the number of years you've been paying premiums and works like the standard LIC calculator. It’s an important tool for those who want to know the LIC surrender value before deciding to cancel their policy.

How to Use LIC Surrender Value Calculator?

To calculate the surrender value of the LIC policy, here’s how you can use the LIC surrender value calculator:

Step 1: Visit the official LIC website.

Step 2: Scroll down to “Premium Calculation”

Step 3: Provide the required details (name, DOB, contact, etc). Click on “Next” and Select “Quick Quote”.

Step 4: Select the plan, and fill in your policy specifics such as sum assured and policy term to get an accurate calculation.

Step 5: The calculator will display premium amounts for various payment modes, select the mode that you pay your premiums in.

Step 6: Review the detailed surrender value illustration that shows the LIC surrender value for different policy years.

Performing a LIC surrender value check online using this step-by-step process enables you to understand your policy’s financial benefits clearly without visiting a LIC branch.

Benefits of Using LIC Surrender Value Calculator

Using an LIC surrender value calculator comes with several advantages as follows:

• Quick Financial Assessment

  It provides a quick estimate of how much you’ll receive if you decide to surrender LIC policy early, making it easier to plan your finances.

• Informed Decision Making

  By knowing your LIC policy surrender value, you can decide if surrendering your policy is the best option for your current financial situation.

• Exploring Alternatives

  If the surrender value is low, the calculator can prompt you to consider other options, such as taking a loan against the policy’s value instead of surrendering it.

• User-Friendly

  The LIC policy surrender online tools are simple to use, requiring no advanced financial knowledge, so anyone can access this service.

Documents Required For LIC Policy Surrender

Although LIC policy surrender is not advisable, here are the documents you will need if you still wish to do so. As per LIC terms and conditions, you should have these documents if you’re looking for how to surrender LIC policy online or offline.

• Original policy bond documents

• Request for surrender value payment

• LIC Policy Surrender form- form 5074

• LIC NEFT form

• Bank account details

• Original ID proof like an Aadhar card, PAN card or driving license

• A cancelled cheque

• Hand-written letter to LIC stating the reason for discontinuing

Understanding how to cancel LIC policy can help avoid penalties and ensure smoother processing.

Steps to Surrender LIC Policy Online

If you're considering how to surrender LIC policy online, follow these simple steps to complete the process:

Step 1: Visit the LIC Website

Step 2: Download the Surrender Discharge Voucher (LIC Form No. 5074)

Step 3: Enter details such as your policy number and personal information.

Step 4: Attach documents such as your policy bond, identification proof, and address proof.

Step 5: Submit the LIC Policy Surrender form online through the LIC online portal. You will receive a confirmation upon successful submission.

Step 6: Wait for the Surrender Value Credit. The surrender value will be credited to your bank account within 7-10 days, as the LIC policy surrender processing time is a lengthy process.

If you're also wondering how to withdraw LIC policy online, the process is quite similar to surrendering. Just follow the steps discussed above and submit the required documents through the LIC portal for a smooth withdrawal experience. The LIC portal now allows users to check their surrender status instantly after LIC Policy Surrender form submission.

Why You Should Avoid Surrendering Your LIC Policy

• Loss of Life Cover: Surrendering your LIC policy means giving up the life insurance protection it offers.

• Higher Future Costs: As you age, premiums for new policies increase. Surrendering and buying a new policy later can be more expensive in the long run.

• Lower Surrender Value: The amount you receive upon surrendering your LIC policy is typically less than the total premiums you’ve paid. This means you may lose money.

1. Alternative to LIC Policy Surrender: Paid-up Policy

   Instead of surrendering your LIC policy, you can stop paying premiums and convert it into a paid-up policy. The sum assured decreases, but you retain reduced life cover until the end of the policy term.

2. Paid Up Value Vs. Surrender Value

   Features	Paid-up Value	Surrender Value
   Lump-sum Payment	Paid at the end of the policy term	Immediately given to the policyholder
   Maturity or Death	Provides total paid-up value	No compensation offered
   Future Bonus	Non-eligible	Non-eligible
   Premium Payments	Immediately stopped	Immediately stopped

   This approach allows you to maintain some level of life cover without completely losing the benefits of your LIC policy.

Wrapping It Up

When an LIC policy surrender happens, the customer loses out on many benefits of the scheme. If surrendered before a definite period, the premium amount is much higher than the value received. Therefore, retention of existing policies and continuation of all policies without allowing them to lapse is the best strategy for continuing life insurance protection.

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