How To Surrender A LIC Policy?
Since its inception of the Corporation in 1956, the Life Insurance Corporation of India has been serving its customers faithfully and offering the consumers different types of transparent insurance plans with several variants to cater to the varied needs of the individuals. Though not frequently, sometimes the policyholders surrender the purchased LIC policy before the maturity time due to certain reasons. The main reason among them is, that they have purchased the policy without understanding terms and conditions of the policy.
Surrendering a LIC policy refers to the fact that when you are not satisfied with the plan, you opt out to return or surrender the plan before the maturity time. And, after surrendering a policy, the amount the insured person receives is usually called the LIC policy surrender value. There are certain terms and conditions for surrendering a LIC policy. However, it would not be wise to surrender a policy because the surrender value will always be lesser, until and unless there is some major issue with the policy.
How Will You Get Affected Once Surrender a LIC Policy?
Once you surrender a LIC policy, there could be various consequences that may affect you financially. Have a look at the below mentions.
- Loss of Benefits – Once you buy an insurance policy, it becomes a contract between the insurer and insured and you will continue to avail of the facilities of the policy. But, if you surrender the policy, the contract will be revoked and the life cover component will not exist anymore. so, you will not be receiving any of the facilities and benefits of the policy.
- Loss of Protection – Once you surrender the policy, it refers that you are no anymore under the protection of the policy. It may raise difficulties in life for you as well as for your family.
- Financial Burden – After the surrender of the LIC policy, you cannot avail of any of the benefits of the policy. Therefore, if you face an accident or any other life risk, that may pose a huge financial burden on you and your family.
- Loss of Tax Benefits – There are multiple tax benefits that one can avail of for a life insurance policy as per the Income Tax Act, 1961. These benefits, too, will be revoked as surrender means a closure of the existing contract.
LIC Policy Surrender Value Calculation
Only after fulfilling certain terms and conditions of the Corporation, the LIC policy can be surrendered. The guaranteed surrender value can be calculated in the following way.
Surrender value for life insurance plans = Guaranteed Surrender Value or Special Surrender Value, whichever is higher.
Surrender value for Unit Linked Plans = Unit Fund Value minus the Discontinuance Charge.
How Much Amount Will Get After Surrending LIC Policy?
For life insurance plans:
Generally, there are two types of surrender available with the Life Corporation of India for life insurance plans. Here are the details of both types.
- Guaranteed Surrender Value – Guaranteed Surrender Value payable during the policy term shall be equal to the total premiums paid (excluding extra premiums, taxes, and premiums for riders, if opted for) multiplied by the Guaranteed Surrender Value factors applicable to total premiums paid. These Guaranteed Surrender Value factors expressed as percentages will depend on the policy term and policy year in which the policy is surrendered.
- The Special Surrender Value – It is reviewable and shall be determined by the Corporation from time to time that is subject to prior approval of IRDAI.
For ULIP Plans:
- If the policy is Surrendered during the 5 years’ lock-in period – If the insured person prefers to surrender the policy during the 5 years’ lock-in period, then the Unit Fund Value after deducting the Discontinuance Charge shall be converted into monetary terms. This monetary amount will be transferred to the Discontinued Policy Fund. The amount of the surrendered Policy will be payable at the end of the lock-in period.
- In case of death of the Life Assured after the date of surrender but before the expiry of
- the 5 years’ lock-in period, the Proceeds of the Surrendered Policy Fund will be payable to the nominee or the legal heir immediately.
- If the policy is Surrendered after the 5 years’ lock-in period – If the life assured applies for the surrender of the policy after lock-in-period, then the Unit Fund Value as on the date of surrender will be payable. There will be no Discontinuance Charge under the policy.
Difference Between Paid-up Value and Surrender Value
A paid-up policy is that if, after at least two full years’ premiums have been paid and any subsequent premiums are not duly paid, this policy will not be wholly void, but will continue as a paid-up policy till the end of the policy term. While the surrendered policy and a paid-up policy often sound similar, it is important to understand the difference between a surrendered policy and a paid-up policy.
- The surrender value of a policy will be paid immediately whereas the paid-up value will be paid only upon death or maturity of the policyholder.
- When surrendering a policy, the coverage will be terminated immediately. In the case of a paid-up policy, the coverage will continue till the date of maturity with the reduced sum assured value.
- Additional benefits such as riders will be discontinued in both cases. However, the bonus amount accumulated till the time of discontinuation will be paid in case of paid-up policies.
- Payment of premiums is immediately stopped for both cases.
Process To Surrender a LIC Policy?
Though LIC has not laid out any strict rules for surrendering a policy, a LIC plan LIC can be surrendered at any time if two full years’ premiums have been paid. For ULIP Plans, the policy can be surrendered during or after the 5 years of lock-in period. As mentioned above, according to the nature of your policy and the surrendering type, the monetary amount you will receive as surrender value. However, the surrender value is also dependent on the time span for which the premiums have been paid and the duration of the policy on the surrender date.
Steps for surrendering:
- After fulfilling all the criteria, if you want to surrender a LIC policy, you need to intimate the insurer.
- You need to fill out the intimation form or the surrender form that can be either downloaded from the official website of LIC or, you can also collect it from the nearest official branch of the Corporation.
- Along with that, you need to send a letter to the insurer stating the reason for surrendering. You can do it either via email or send it through the postal address. You are also required to send all the necessary documents for reference.
- After that, the corporation will evaluate your surrender application and if found satisfactory, you will receive the surrender value in your registered bank account.
The required documents for surrendering a LIC policy:
- Original copy of policy bond
- Print out of surrender form of LIC (available on the official website).
- A canceled cheque from the policyholder’s bank
- LIC NEFT form
- Bank account details
- Valid identity proof such as Aadhar card, Voter card, Pan Card, etc.
- Written letter to LIC stating the reason to discontinue
- Any other documents as demanded by the Corporation
When Should You Surrender a LIC Policy?
Though LIC is a reputed and trusted insurance company in India, sometimes, not usually, the policyholders have to surrender the LIC policy for different reasons. Here are the few factors that may force you to surrender a policy.
Not understanding the terms and conditions – It is the main reason that people need to surrender the policy. At the time of purchasing the policy, most of the policy-seekers either do not read the policy wordings properly or do not understand the terms and conditions of the policy and face different problems in the future.
Insufficient Coverage – It may happen that you have bought a LIC policy thinking that it would come up with a sack full of benefits, whereas it actually has not. Rather, it cannot fulfill your requirements. In that case, continuing with that policy would not be wise.
Found a Better Plan – If you have found a better plan with similar benefits and more facilities and advantages after purchasing a certain LIC plan that can address your specific needs in a broader sense, you can surrender your previous policy.
Financial Problem – It may happen that you have fallen into a certain financial crisis and continuing with the LIC plan has posed a burden to you, whereas its primary aim is to offer you financial relief. In that case, also, you may surrender the policy to cope up with your economic emergency.
Hidden Cost – Though it rarely happens with LIC, it might be possible that you have bought the LIC policy from any intermediatory and all the charges and costs of the policy are not explained to you explicitly. In that case, if the policy seems expensive to you, you can surrender the plan.
Pre-existing Similar Plan – After you have bought the policy and then have found out that you already have a similar type of insurance policy with almost similar benefits and facilities, it would be advisable to keep the most suitable one and surrender the other.
However, as mentioned earlier, LIC is one of the most trusted and reputed insurance companies, which is directly owned by the Government of India, it is better to think twice and evaluate the factors, consequences, and the other strands time and again before taking the final decision of surrendering.