Many of us buy LIC policies without knowing features and benefits. However, after few days we feel such LIC policies are irrelevant. Hence, we want to get rid of such policies. The solution is to surrender such LIC policies. How to Surrender LIC Policy after 3 years or before maturity?
It is the option to exit from life insurance product before maturity wherein policyholder will get the amount which is called as Surrender Value. A regular premium policy will be eligible for surrendering after the policyholder has paid the premiums continuously for 3 years.
As I said, to be eligible for surrender the policy must complete 3 years. By surrendering LIC policy, you may not be in profit as they pay you some part of the total accumulated bonus and the premium you paid.
# You will loose the Life Insurance Protection available from the policy. As surrender of LIC policy is considered as the closure of the contract between you and insurance company.
# Tax Benefits availed under Sec.80C of IT Act will be reversed if the policy is terminated/cease to be in force within 2 years for traditional products and 5 years for ULIP products after the date of commencement of policy.
Refer the taxation of Life Insurance Policies at “Tax Benefits of Life Insurance“.
There are two types of Surrenders. Let us discuss both the types.
If your policy is eligible for this surrender value then it to be mentioned in the policy bond and is payable after the completion of 3 years. It is usually 30% of the premiums paid, excluding premium for the first year. It also excludes any additional premium paid for riders, taxes and any bonus that you may have received from the LIC.
However, the percentage of this Guaranteed Surrender Value will depend on the Policy Term and policy year in which the policy is surrendered.
Let us say your yearly premium is Rs.1 Lakh and you paid it for 4 years.
Total Premium Paid=Rs.4 lakh.
Premium excluding 1st year=Rs.3 lakh.
Then the Guaranteed Surrender Value will be 30% of the Premiums Paid (excluding 1st Year Premium). Hence, 30% of Rs.3,00,000 will be Rs.90,000 is what you get.
Remember, this Guaranteed Surrender Value will not add the already accrued bonus.
It is calculated as below. But before that, you must understand one more term called Paid Up Value.
If premiums have been paid for at least three consecutive years and any subsequent premium has not been paid within the grace period, then such lapsed policies are called paid up policies. The sum assured is reduced to a proportionate sum assured which was available during the policy buying.
For example, if Sum Assured is Rs.5 lakh and the total number of premiums payable is 20 years and premium payable is yearly and let us say premiums are paid for 10 years. After that, you discontinue the policy.
Such discontinued policy is called paid up policy. This is calculated as below.
Paid Up Value=(No. of Premiums Paid/No. of Premiums Payable) * Sum Assured.
Paid Up Value=(10/20) * Rs.5 lakh=Rs.2,50,000.
So from the 11th year, the policy will continue with sum assured of Rs.2,50,000 only instead of original Rs.5,00,000. Along with this paid up sum assured the bonus already accrued up to the 10th year will be added. This is called Total Paid Up Value. Therefore Total Paid Up Value=Paid Up Value+Accrued Bonus.
If LIC declares any future bonus or guaranteed additions to the product, then your policy is not eligible for such future bonus or GA. You will receive only the Total Paid Up amount at maturity or death of policyholder.
Total Paid Up Value will be payable to you at maturity or your nominee (if your death occurs during the policy period).
In simple terms, Special Surrender Value is the % of Total Paid-up Value and it is calculated as below.
Special Surrender Value=(Sum Assured * (No. of premiums paid/No. of premiums payable) + total bonus received)* surrender value factor.
In simple, Special Surrender Value=Total Paid Up Value*Surrender Value Factor.
This Surrender Value Factor changes based on the term of the policy and many other things. Usually, this value is zero for the first 3 years. Hence, for the particular year and for your policy, you have to check with LIC for this data.
I created below table for your understanding of the difference between the meanings of Paid Up Value and Surrender Value.
Hope you now understood the concept of Paid Up Value, Total Paid Up Value and Surrender Value.
First keep in mind that as of now Surrendering LIC policy is not possible ONLINE. Also, you have to surrender the LIC policy at your servicing LIC branch ONLY. Servicing branch may be the branch where you purchased the policy. Otherwise, if you changed the branch, then that particular LIC branch represent the servicing branch for you. The reason for this is, your all policy documents like proposal forms, loan details and all other details will be available at servicing branch only.
Also, keep in mind that you have to personally visit the branch and request for surrender of LIC policy.
Once you submit the necessary documents, then within 5-10 days they transfer the fund to your bank account.
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View Comments
Dear sir,
I want to surrender my policy.i am paid every year premium Rs.75000 for 4 years.if close the policy how much I will get back.
Dear Raguram,
Contact the nearest LIC branch.
Hi Sir I ve taken 814 endowment plan 3 yrs back I didn't know much about this policy and my policy maturity after 35 yrs and I will get 1cr but now its very difficult to continue premium of 60k p.a .What should I do now plz suggest best way to quit
Dear Wasef,
You don't have any other option but to surrender or paid up. Visit the branch and ask for the values.
Sir, I took LIC Money Plus T No. 180 policy in 2007. Maturity date was March 2017. I paid annual 15000/- premium for subsequent 3 years till 2010. In 2010 the surrender value was calculated around 55000/- I did not opt for surrender then. Now I contacted LIC customer care, they told me this policy got "Foreclosed" so they can't provide any SV details and I should contact the issuing branch. Kindly tell me how would the SV get calculated now ? How much money could I hope to get ? Where can I find details of such foreclosure ?
Dear Vivek,
As suggested by the contacted branch, better to visit the branch where you have purchased the policy.
Sir,
For surrender of policy, bank cancelled cheque/account should be the same from which premiums have been paid or another bank account of policy holder can be given for credit of surrender amount?
Dear Mansur,
Can you elaborate clearly?
Hi Sir,
I took jeevan labh for 4 lakhs for 16yrs. So far I paid 60k premium for 3 yrs. Now I would like to surrender my policy. Kindly advise the best way and how much I would get it
Dear Sandeep,
Better to opt for paid-up than surrender.
Dear Sir,
I had 15 years of LIC policy but I surrendered it after 10 years and I also got the lumsum amout of it. Now is this whole amount Taxable ? Do I need to declare the whole amount into ITR fill ?
Dear Vicky,
Refer my post "Tax Benefits of Life Insurance".
Hi Sir , I have taken new Jeevan Anand policy in the year 2019 for the Sum assured of 10 L for 22 yrs.. Now I've paid 3 Yrs premium & want to discontinue this policy with paid up option.
Should I notify this to LIC or they will automatically convert into Paid up ?
Dear Babu,
You no need to intimate to LIC.
Sir, I have 7 policies of New Jeevan Anand and want to surrender it.
Premium period paid :- 5.5 years.
The surrender value is 22k to 17k of 7 policies with 25,26,27th year maturity and so on..
Premium per year paid is 36k
Accrued bonus is 24k in each policy.
Total surrender value of 7 policies will be more than 1 lakhs.
So, do I have to fill form 15g to avoid tax deduction and will I get part of accrued bonus ( call center says I won't get any bonus)
Please help
Dear Poonam,
You will not get a full bonus as it is a surrender value.
I have a policy done for my kid and the premium each month was 2973 which I paid for 8 years, commencement of policy was from 11/2013 till 11/2028. I want to surrender the policy as of now and wanted to know how much will I get.
Dear Vijay,
Contact the branch.
Dear sir,
I have LIC New Jeevan Anand 815 Policy and details :
Sum Assured: 1000000
Monthly Premium : 6392 + GST (143.82) = 6,536
Paid until this month : 65 Months
Policy Start Date : Jan-2016
Policy End Date : Dec-2031
Maturity Date : Jan-2032
Total years : 16
Paid amount upto this month : Rs.415,480
If I surrender only I get 50% of the paid amount. What to do now? can I surrender or paid-up the policy? .Really confusing please guide me.
Thanks
Dear Raja,
Better to opt paid up.
Thank you sir