Surrendering LIC Policy Before Maturity

What Is Surrendering Of LIC Policy?

Surrendering an LIC policy refers to voluntarily terminating the policy before its maturity. This applies to various plans, including endowment, whole life, and even term insurance, in certain cases where specific conditions are met. 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.

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. 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.

How To Surrender LIC Policy?

Although LIC policy surrender is not advisable, here are the documents you will need if you still wish to do so.

Documents Required For LIC Policy Surrender

• Original policy bond documents

• Request for surrender value payment

• LIC 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

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 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.

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.

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.

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.

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. 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: Enter Policy Details

Input details such as your policy number, sum assured, premium amount, policy term, and the number of premiums paid.

Step 2: Get the Estimated Surrender Value

Once you enter your details, the calculator will estimate the LIC policy surrender value based on the data provided. It gives you a quick idea of what you might receive if you choose to surrender LIC policy online.

Step 3: Evaluate the Result

Consider the estimated surrender value and whether it meets your financial requirements. You may want to explore other options if the value is lower than expected.

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.

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 3 years. This means the premium must be paid for a minimum period of 3 years. If you surrender after 3 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
  It is usually higher than the guaranteed surrender value. This is how special surrender value for LIC policies works –

  • If you pay premiums for more than 3 years but less than 4, you get up to 80% of maturity sum assured.

  • If you pay premiums for more than 4 years but less than 5, you get up to 90% of maturity sum assured.

  • If you pay premiums for more than 5 years, you get up to 100% of maturity sum assured.

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.

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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