Surrender LIC Policy

You can surrender the policy under specific conditions as mentioned below:

1. For single premium plans, you can surrender in the second year for single premium plans

1. For limited and regular premium plans:

o   Policies 10 years or less can be surrendered after two years

o   Policies of more than 10 years can be surrendered after three years.

For a regular insurance, the surrender value of the LIC policy can be calculated only after the policyholder has made the payment of the premium consistently for three years. Thus, if you have decided to surrender your policy within the first two years, you will not be receiving any incentive from LIC. The surrender value of the insurance policy is 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 factor of surrender value.

What is Surrender Value of LIC Policy?

The surrender value of an LIC policy refers to the amount of money a policyholder will receive after surrendering the policy before the maturity date of the policy. This value is calculated based on various factors such as:

1. Total premiums paid

1. Policy's duration

1. Any bonuses accrued
2. Deductions for surrender charges (if applicable)

The surrender value of the policy represents the cash value that the policyholder can receive upon surrendering the policy.

How is LIC Surrender Value Calculated?

Here are the details of how LIC surrender value is calculated:

1. Only after you fulfil certain criteria, such as payment of policy premium consecutively for three years, can LIC policy be surrendered.

1. LIC will not provide any incentives if you surrender the policy within the first two years of the policy term.

1. Surrender value of your policy can be calculated by using the below formula:

{Basic sum assured + (total number of premiums payable or number of premiums paid) + total bonus received} * X

Note: X is the factor of surrender value.

What are the Implications of LIC Policy Surrender?

Following is some of the ways in which a policyholder gets affected if he/she decided to surrender his/her LIC policy:

1. Since the contract between the insurer and the insured is revoked, the life cover component will not exist after the policyholder has surrendered his/her policy. Therefore, any benefits that were previously accessible will cease to be valid.
2. There are multiple tax benefits that one can leverage for a life insurance policy under Section 80C of the Income Tax Act, 1961. These benefits, too, will be revoked as surrender means the closure of the existing contract. Tax benefits for traditional life insurance policies are revoked if the policy ceases to exist/be surrendered within two years of the commencement date whereas for ULIPs, this period of time is extended to five years.

Types of Surrender in LIC Policies

Typically, there are two types of surrenders available in this scenario:

1. Special Surrender Value:

If the policyholder has paid his/her premiums regularly for more than three years, but less than four years, 80% of the total maturity sum assured amount is provided by LIC to the policyholder. If the policyholder has paid his/her premiums regularly for more than four years, but less than five years, 90% of the total maturity sum assured amount is provided by LIC. The policyholder receives 100% of the maturity sum assured if he/she has diligently paid premiums for more than five years.

1. Guaranteed Surrender Value (GSV):

A policyholder can surrender his/her policy only after three years, i.e., it must have been in force for at least three years. The surrender value provided by LIC is essentially 30% of the premiums that have been paid so far. However, this will exclude premiums that were paid during the first year of the policy, and premiums paid towards accident benefit/term rider.

1. An Alternative to LIC Policy Surrender

Rather than surrendering your LIC policy, you can also stop paying policy premiums but continue your life cover. This is the time when the insurance policy becomes a paid-up policy. Under a paid-up policy, the amount received as the sum assured reduces. This decreased sum assured is known as paid up value.

The policyholder will continue to receive till the end of the policy term. On maturity or death, the reduced sum assured or the paid-up value is offered.

1. Paid-up Value versus Surrender Value

Surrender value and paid-up value is quite similar. The following table shows the comparison between the two:

LIC’s Perspective on Policy Surrender

The Corporation pays the special surrender value to any policyholder who wishes to surrender his/her policy after three years. The special surrender value, however, is wholly dependent on the time span for which the premiums have been paid and the duration of the policy on the surrender date.

Every LIC policy comes with its own terms and conditions and the policyholders should read them thoroughly before purchasing the policy. The period of surrendering the policy varies from one policy to another based on the time of policy purchase and terms related to premium payment. The normal minimal period to surrender LIC policy is given below:

Under Single Premium Plan

Under the Single Premium Plan, the policyholder can surrender the policy in the second year of its purchase. The policy cannot be surrendered in the first year of its purchase.

Under Limited Period and Regular Premium Plan

Under limited period and regular premium plan, the terms and conditions of various policies vary. However, given below are the general information:

1. If the policy is ten years or less, the duration of policy surrender is two years.
2. If the policy period is over ten years, the minimum duration of policy is three years.

Mandatory Documents for Policy Surrender:

Policyholder will be required to carry the following documents during the time of surrender of policy:

1. Policy bond - the original copy
2. Printout of LIC policy surrender form No.5074
3. A cancelled cheque from the policyholder's bank
4. Policyholder will be required to utilise the LIC NEFT form, if above-mentioned form No.5074 is not being used
5. Proof of identification like Aadhaar card needs to be carried along
6. Bank account details
7. Permanent Account Number (PAN) card
8. A cancelled cheque

How to Surrender LIC Policy?

The LIC doesn't set any particular rules for policy surrender. However, if you want to cancel your policy or ULIP before it matures, you need to complete the process outlined below:

Step 1: Go to the nearest branch of LIC or visit the insurer’s official website.

Step 2: Download or take a printout of the ‘Surrender Discharge Voucher’ (LIC Form No. 5074) at the LIC office.

Step 3: Complete the form and submit it along with the necessary supporting documentation.

Step 4: The process of surrendering the policy will commence after the form has been approved by the insurer.

Step 5: You will receive the surrender value in your registered bank account.

Here are the steps to surrender the LIC policy through offline mode:

1. Visit your nearest LIC branch  

1. Obtain the Surrender Discharge voucher (Form 5074)
2.  Submit the dully filled form along with required documents

1. LIC will process the surrender request after submission of the form

1. Surrender value will be transferred to the linked bank account upon approval by the LIC

1. You can also courier the Surrender Discharge Voucher and other documents to the LIC’s head office in Mumbai instead of visiting the office in person

How to Check LIC Policy Surrender Status Online?

Here are the steps to check LIC policy surrender status online:

1. Visit the official LIC website.

1. Using your credentials, log into your account

1. Click on ‘register’, if you are a new user

1. Select ‘Enroll Policies’ from the left of homepage

1. Click on 'Click to Enroll New Policies'

1. Click on 'Proceed’

1. Enter the necessary details, such as:

o   Policy number

o   Policyholder's name

o   Premium amount

1. Click on the 'Enroll your policy' option

1. Select 'Click for details' next to your policy, under the 'Loan and Bonus' column

What Happens After Surrendering LIC Policy?

It is not recommended to surrender the policy before it reaches maturity because the surrender value paid is low compared to the total premiums paid by the policyholder. Here is what happens after you surrender your LIC policy:

1. The policy's coverage with immediate effect.

1. All of the policy's benefits will be null and void.

1. The policy cannot be restored in the future.

1. You will receive the surrender value based on how long you held the policy.

Why Should You Not Surrender LIC Policy?

Here are the reasons why you should avoid surrendering the LIC policy:

1. It results in loss of life coverage of the LIC policy.

1. The amount received on surrendering the policy is lesser than the total premium paid, hence resulting in loss of fund.

1. Surrendering and purchasing new policy later may be more expensive in the long run.