Do you want to surrender your insurance policy but don’t know how? Here we have collated the top five queries and their answers for your benefit. Read on:
Question 1: What is surrender value?
Surrender value is what an insurance company pays if the insured surrenders the life insurance policy. The life cover provided by the insurer ends with its surrender as it results into the termination of the contract between the insured and insurer. On surrender, the policyholder gets the fund value minus charges that the insurer levies on account of premature policy termination. As per IRDAI regulations, no surrender charges are levied upon policies if the policyholder chooses to surrender the policy after five years.
Question 2: Which policies can be surrendered?
You can surrender such policies as endowment and ULIPs, which offer both insurance and investment. Surrendering term plans which do not have maturity benefits will lead to a policy lapse.
Question 3: When does a policy acquire surrender value?
A regular premium insurance policy acquires the surrender value if the policyholder has continuously paid premiums for at least three years. If after paying premiums for three years, you do not wish to continue the policy, you can freeze your investment at that point of time by converting it into a paid-up policy.
Question 4: What happens when I surrender the policy?
All rights available to you as a policyholder cease to exist once the policy is surrendered. Therefore, you should surrender the policy only if you have been sold a wrong insurance policy or the features of the policy are different from what were promised at the time of issuance.
Also if you surrender the policy during the initial years, say 2 or 3 years from its inception, the surrender value would be approximately 30% of the premiums paid to date. Also insurers exclude the premium paid in the first year while computing the surrender value. In case of ULIPs, the insured suffers a major loss as charges in these schemes are front-loaded. A sizeable chunk of the premium paid in the initial years goes towards meeting charges, leaving behind a meager amount for policyholders.
Question 5: What is the procedure for surrendering a policy?
To initiate the policy surrender, follow the below-mentioned steps:
- Submit a duly filled surrender form
- A self-attested copy of ID-proof
- Cancelled cheque
Once the insurer receives the surrender request, the customer gets a notification call for the payout. The entire process takes 7-10 days to complete.
You may also like to read : Understanding Surrender Value In Insurance