Surrendering LIC Policy Before Maturity

What Is Surrendering Of LIC Policy?

When you opt out of a policy before its maturity, it is called surrendering the policy. The amount that you receive at the time is the LIC policy surrender value. The life cover stops immediately, and you won’t be able to revive it in the future.

Surrender of policy 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?

• 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 surrendering your policy is not advisable, here are the documents you will need if you still wish to do so.

Documents Required For 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

What is Surrender Value of LIC Policy?

The surrender value of an LIC policy 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? 

For a regular policy, 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 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.

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

By surrendering the LIC policy, 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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