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 the terms and conditions of the
policy.
Surrendering aLIC 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 fac ilities 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 Indiafor 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
If you have any questions on this plan, please contact our team and we would be happy to help.
Thank You,
Team
(Growmore Insurance Point)