Surrendering LIC Policy Before Maturity Time: Your Guide!

The Life Insurance Corporation of India is one of the most prominent insurance companies. It has an unparalleled trust among customers throughout the country. But sometimes, people opt for LIC policies without understanding the policy as a whole at the start. This leads to the return of a policy before its maturity. The surrender value is what you get when you decide to discontinue your LIC policy. 

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What Is Surrender 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 LIC surrender value will always be substantially lower than the original benefits promised.

How Is LIC Surrender Value Calculated?

For a regular policy, the LIC policy surrender value 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 premium paid/ total number of premium payable) plus total bonus received} multiplied by X, where X is the factor of surrender value.

Payment In Case Of Surrender

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

  1. Guaranteed Surrender Value (GSV)

    Under the guaranteed surrender value, the policyholder can surrender their policy only after the completion of 3 years. This means that the premium has to 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 till date. However, this is excluding the premium paid in the first year and the premiums paid towards accidental benefit riders.

    So, the later the policy is surrendered, the higher will be the LIC surrender value.

  2. Special Surrender Value

    It is usually higher than the guaranteed surrender value. This is how special surrender value for LIC policies work –

    • 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.

  3. An Alternative to LIC Policy Surrender

    Instead of surrendering your LIC policy, you can stop paying premiums but continue your life cover. This is when the policy becomes a paid-up policy. Under a paid-up policy, the sum assured decreases. This reduced sum assured is called paid-up value.

    The life cover goes on till the end of the policy term. On death or maturity of the LIC policy, the reduced sum assured or the paid-up value is offered.

  4. Paid-up Value versus Surrender Value

    As we can see that paid-up value and surrender value sounds quite similar. So, here is a table that will help you get a clarity between these two:

    Features Paid-up Value Surrender Value
    Lump-sum Payment It is paid at the end of the policy term Immediately given to the policyholder
    Maturity of the policy or Life assured's death Total paid-up value is provided No compensation is offered
    Extra future bonus Non-eligible Non-eligible
    Premium payments Immediately stopped Immediately stopped

When Can You Surrender The LIC Policy

Every LIC policy has its own terms and conditions and the policyholder is advised to read them carefully before buying the policy. The period of surrendering any policy varies from one another, depending on their time of purchase and the premium paying terms. The usual minimum period to surrender LIC policy in normal scenario is as follows:

Under Single Premium Plan

Under this plan, policy can be surrendered in the second year of purchase. Surrender of policy can never be made in the first year of policy purchase.

Under Limited Period And Regular Premium Plan

Under this plan, usually the terms and conditions vary of different policies. But in general,

  • If the policy is of 10 years or less, the policy surrender duration is 2 years

  • If the policy is of more than 10 years, the minimum duration is 3 years.

How To Surrender LIC Policy

Even though it is not advisable to surrender your policy, if you still wish to do so, here are the documents you will need.

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 Aadhar card, pan card or driving license

  • A cancelled cheque

  • Hand-written letter to LIC stating the reason to discontinue

Why should you not surrender LIC Policy?

  • You will lose the protection of the life cover.

  • Premiums get higher as you grow older. Therefore, surrendering a policy and then buying a new one will eventually cost you more.

  • The surrender value is a lot lower than what you originally invest in the policy. You are actually losing money by surrendering your LIC policy.


To conclude, by surrendering the LIC policy, the customer loses out on a lot of benefits of the scheme. If surrendered before a definite period, the amount of premium 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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