How to surrender LIC policy and get the surrender value

Starting an LIC policy requires a lot of planning and budgeting. But closing an LIC policy may not take much time, but the ultimate loser is the policyholder. During emergencies or any financial crunch, people choose to close the LIC policy in the first place, but they don’t realise the consequences. Many say that the returns are very low with insurance plans, but today it is not easy to find anyone who can return your complete investment with some additional returns. Life insurance is the added advantage in most of the LIC plans. 

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Buy a LIC policy as per your need and budget. Most people buy the insurance plan on seeing the calculation and end up surrendering within a few years of its inception. Don’t fall prey to online life insurance misselling traps and lose your hard-earned money.

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Surrendering a Life Insurance Corporation (LIC) policy means terminating the policy before its maturity date and receiving a payout, known as the surrender value. While this may seem like a quick way to access funds, it often results in financial losses and the termination of life insurance coverage. Below is a step-by-step guide on how to surrender an LIC policy, the calculation of surrender value, and reasons why it may not be a good decision.

How to surrender LIC policy and get the surrender value

Steps to Surrender an LIC Policy

1. Visit the Nearest LIC Branch
   • Go to the LIC branch where the policy was issued.
2. Obtain and Fill the Surrender Form
   • Request the surrender form (Form 5074) from the branch
3. Submit Required Documents
   • Original policy document.
   • A duly filled surrender form.
   • Identity and address proof (such as Aadhaar, PAN card, or passport).
   • Bank account details (canceled cheque or bank passbook copy).
   • Policyholder’s recent passport-size photograph.
4. Verification and Processing
   • LIC officials will verify the documents, process the surrender request, and determine the surrender value.
5. Receive Payment
   • Once the request is processed, LIC will credit the surrender value directly into the policyholder’s bank account.

How the Surrender Value is Calculated

The surrender value depends on the type and duration of the policy.

• Special Surrender Value: It is calculated as a percentage of the paid-up value and varies based on the policy duration and type.

The general formula is:

Why Surrendering is a Financial Loss

1. Low Surrender Value
   • The surrender value is often significantly lower than the total premiums paid, leading to a loss.
2. Loss of Life Cover
   • Once surrendered, the insurance coverage terminates, leaving the policyholder and their family uninsured.
3. No Loan Facility
   • An active LIC policy can be used as collateral for loans, which is not possible after surrender.
4. Loss of Future Benefits
   • Bonuses and maturity benefits are forfeited upon surrendering.
5. High Financial Costs
   • If a new policy is purchased later, the premium may be higher due to increased age and health risks.

FAQs on Why Not to Surrender an Existing Insurance Policy

1. Will I get back all the premiums paid if I surrender my LIC policy?
   • No, LIC pays only a portion of the premiums as the surrender value, leading to financial loss.
2. Can I revive my policy instead of surrendering it?
   • Yes, policies can often be revived within a specific period by paying pending premiums and penalties.
3. Is it possible to take a loan against an LIC policy instead of surrendering?
   • Yes, policyholders can avail of loans against their LIC policy at lower interest rates.
4. Will I get the full sum assured if I surrender?
   • No, only a percentage of the paid-up value and accumulated bonuses will be given.
5. What happens to my tax benefits if I surrender?
   • The tax benefits claimed under Section 80C may become taxable if the policy is surrendered prematurely.
6. Does surrender affect my credit score?
   • No, surrendering a policy does not impact credit scores, but it affects financial stability.
7. Can I convert my policy into a paid-up policy instead of surrendering?
   • Yes, by stopping premium payments, the policy can be converted into a paid-up policy with reduced benefits.
8. Is it better to surrender or let the policy lapse?
   • Neither is advisable; keeping the policy active ensures continued life coverage.
9. Can I transfer my LIC policy to another person?
   • No, LIC policies are non-transferable.

Surrendering an LIC policy should be the last resort, as it leads to financial loss and termination of life coverage. Instead, policyholders should explore alternatives like taking a loan, converting the policy into a paid-up plan, or reviving the policy to retain its benefits. Consulting with a financial advisor before making such a decision is highly recommended.