How To Surrender LIC Policy

The largest insurance provider of India, Life Corporation of India (LIC) offers a huge variety of life insurance policies to billions of Indians. All these plans carry specific policy tenure so that the policyholder selects the policy term as per their need and requirements. But the question arises, what if the policyholder wants to discontinue with their policy before the selected policy term due to any reason? Does LIC allow us to surrender the policies?

The answer is yes. You can definitely surrender the policy taken for the specific policy term and this process is generally termed as “surrendering of policies” which can be opted by the policyholder at any given point of time.

Here’s a comprehensive guide on the surrender of LIC insurance plans and the detailed process and formalities related to the surrender of policies.

What Do You Mean By Surrendering of LIC Policy?

Before moving further, let’s understand more about “surrendering of LIC policy”, which simply means, discontinuing the life insurance policy before the completion of its chosen policy term. 

While buying the policy from LIC, the person selects the policy coverage term and post the completion of this chosen term, the policy gets matured and the policyholders get entitled to receive all the benefits and coverage as per terms and conditions.This is the general working of the LIC policy, if the policyholder keeps the policy for the full term. 

But, on the other hand, if the policyholder wishes to surrender the policy and does not want to continue till the end of the policy term, then with the “surrender “option, they can close the same policy. When the policy is surrendered, the LIC pays the surrender value and the coverage gets terminated.

“Surrender Value” is the amount which is payable to the policyholder at the time of the discontinuance of the policy. It is payable to the policyholder only after the completion of three full years of paying premiums to the LIC or depending upon the type of policy and its terms and conditions.

The surrender value of any LIC policy relies on the duration in which the policyholder has held the plan and paid the premiums for and also the duration of the policy till the surrender date.

However, it is not advisable to surrender the policy as the surrender value is comparatively very low from the actual returns which you might receive upon the maturity of the policy. 

When Can LIC Policy be Surrendered?

The option of surrendering the policy is provided by the LIC to its policyholders, but it is subject to certain terms and conditions. The policyholder cannot surrender the policy at any given point of time. Generally, after a minimum period of two or three years of purchasing the policy, they can surrender the policy, depending upon the type of LIC insurance plan and the premium payment term. Let’s see when can one surrender the LIC policy: 

Single-Premium Plans: Under this kind of plan, when the policyholder pays out the premium in one go, the policy can be surrendered post in the second year of purchase. The policyholder is not allowed to surrender the policy in the first year of purchase.

Limited/Regular Premium Plans: In limited and regular premium plans, the term of the policy is generally considered, if suppose the policy term is:

• 10 years or below, the surrender time is two years.
• More than 10 years, the minimum duration is after three years.

How Much Do You Get While Surrendering a LIC Policy?

For LIC Insurance Policies:

As we have already mentioned, the amount that a policyholder receives while surrendering the policy is actually quite less as compared to the total premium paid. Plus, perks such as bonuses, tax benefits and premium paid for add-ons aren’t included while calculating the surrender value. To determine surrender value, you can receive returns either as guaranteed surrender value or special surrender value. 

Guaranteed Surrender Value or GSV: Here, the policyholder gets GSV, if they have paid the premiums for a minimum time period of three years. So, to avail GSV as returns at the time of surrendering the policy, the policyholder has to cancel the policy only after the continuity of three years.In this case, the surrender value is almost 30% of total premiums paid till date, excluding the premiums paid for the first year and premiums paid for optional riders. 

As per the LIC, Guaranteed Surrender Value = 30% X total premiums paid. 

Where, the premiums related to first-year and all the other extra premiums or premiums for accident benefit or the term rider are excluded from the same.

It is to be noted that Guaranteed Surrender Value depends upon the tenure of the LIC policy and the policy year in which you surrender the policy. This means, if you hold the LIC policy for a longer period then the GSV will be higher, and vice versa.

Special Surrender Value: The special surrender value is termed as “special” as it is generally higher than the GSV. However, it totally depends upon the performance of the company (LIC), if the company has made higher profits in past financial years, then it is bound to give higher surrender value than the guaranteed or the fixed one. It is generally determined and reviewed by the LIC from time to time and reviewed under the ambit of the Insurance Regulatory and Development Authority, IRDAI.

For LIC Unit-Linked Investment Plans (ULIPs)

Case 1: For ULIPs, the lock-in-period is a minimum of five years. So, if one surrenders the ULIP plan before the five years of policy, then the unit fund value post deducting the discontinuance charge gets changed into a monetary amount which is moved to the Discontinued Policy Fund. This transferred amount is paid to the insured at the end of the lock-in period.

Case 2: If the insured surrenders the policy after the lock-in-period of five years, then he or she is entitled to receive the Unit Fund Value till the date of surrender. It is to be noted that there are no discontinuance charges levied here.

What is the Process of Surrendering a LIC Policy?

There are no specific policy guidelines which are laid by the LIC to surrender their policy. However, if one wishes to cancel their policy or ULIPs much before the maturity date, then they can easily do it via visiting the company’s website or LIC’s nearest office branch.

• Step 1: Policyholders to go to the nearest branch office of LIC or log in via LIC’s official webpage. 
• Step:2: They can collect the printout of “Surrender Discharge Voucher” or LIC Form No. 5074 either by downloading it online or via LIC office. 
• Step 3: This form is required for discontinuing the LIC policy and for withdrawing the surrender value from your bank and thus has to be carefully filled.
• Step 4: After filling the form, submit back to the LIC along with proper documentation.
• Step 6: Once the form gets acceptance by the company, then the process of surrendering the policy starts.
• Step 6: As a next step, the surrender value gets credited into the registered bank account of the policyholder. 

What are the Documents Required for Surrendering LIC Policy?

• Original copy of LIC policy.
• Print out of LIC surrender form- form 5074 (available on LIC’s website).
• One canceled cheque from the registered policyholder’s bank.
• Details of bank account.
• LIC NEFT mandate form.
• Hand-written application to LIC stating reason for surrender.

What Happens Next Once LIC Policy Gets Surrendered?

As already told, the surrender value paid is comparatively very low to the total premium paid by the policyholder, thus it is not advisable to surrender the policy before its maturity period. You will not be on a winning side by surrendering the LIC policy. The following thing happens, when the policy is surrendered:

• The coverage of the policy stops with an immediate effect.
• You will not be able to revive the policy in future.
• All the benefits attached to the policy will not be applicable.
• The policyholder receives the surrender value depending upon the time till they held the LIC policy.

What Else Can Be Done If Not Surrendering LIC Policy? 

When someone surrenders the policy due to any reason, they are no longer entitled to enjoy the benefits, coverage and returns of the policy, moreover, the paid surrender value is quite low.

However, in such a situation a policyholder can convert their LIC policy to a paid-up policy, which allows the policyholder to discontinue the payment of the premium. The best part about this option is that it allows you to continue enjoying the coverage till maturity or the demise of the policyholder, while putting a pause in the payment of the premium.

This option is only available to policyholders who have opted for limited or regular premium payment terms.  However, the benefits of paid-up LIC policy are reduced to the paid-up value of the policy, and thus the policyholder is not entitled to receive the future benefits of the policy. However, the bonuses earned till the conversion of the policy to paid-up one gets included to the paid-up value of the policy.

Let’s check it out the formula to calculate the paid-up value:

Paid-up value = {(Number of premiums paid / Number of premiums payable) * Sum Assured} + Accrued Bonus (if any).

Bottom Line

Forbes Advisor India advises its readers not to choose the option of surrendering the LIC policy, even though this option is available to the policyholders. By surrendering the policy, you just do not get the limited value but also lose the entire coverage and benefits attached with the policy. However, due to the extreme situation of financial emergency, if you are bound to surrender your policy, then read this guide which has covered everything you need to know about the surrender of LIC policy.