How to Surrender LIC Policy?
In the beginning, I would like to provide a word of caution that in no way a LIC policy should be surrendered before its maturity. This is not a prudent financial decision at all whatever the reasons may be.
We have seen in the past that there are lakhs of investors, who just getting influenced either by friends, family members, insurance agents or even being impulsive or for getting tax benefits U/S 80C, buy any traditional LIC policy without thinking much of its suitability according to their needs.
As a result, a few years later, when they are not in a position to pay the policy premium or due to any unprecedented financial needs, they just tend to surrender the LIC policy first before its maturity without much botheration.
In that case, surrendering the LIC policy before its maturity, they must forget about the return, even they would not get their principal amount back. Yes, this is the most painful thing if you do surrender your LIC policy before its maturity.
I hope, this post would certainly enlighten the facts about how to surrender LIC policy or how to close LIC policy before its maturity and its implication post surrender. Also, I would try to figure out the exact LIC surrender value with some examples.
Key implications of LIC Policy Surrender after 3 years?
Generally, investors are not as much excited while reading the full terms and conditions as buying the LIC policy. So, most of the times you overlook the crucial withdrawal conditions and its surrender value before maturity.
The basic eligibility criteria to surrender a LIC policy before its maturity is that one has to mandatorily continue the premium payment at least for 3 years.
This means the policy is in vogue and only then you are eligible for surrendering your policy and eligible for premature withdrawal.
The premature withdrawal even after 3 years can hit you hard as the policy issuer will not refund you the full amount that you paid as premium and also only a part of the accumulated bonus is refunded. Therefore, this is a complete financial loss altogether.
Now let’s see the key implications of surrendering a LIC policy after 3 years:
- Revocation of policy benefits: Once the LIC policy is surrendered after three(3) years, the contract gets revoked immediately and the policy-holder is not entitled to get access to the policy benefits as earlier;
- Loss of life insurance coverage: Once the policy is surrendered, the life insurance coverage on the policy is lost, and the life of the policy-holder is not secured anymore for which the policy was taken primarily;
- Losing Tax benefits U/S 80C: A LIC policy is very much popular among the investors as a tax-saving instrument u/s 80C. So, once the policy is surrendered you cease to get the income tax benefits U/S 80C.
- Substantial financial loss: Surrendering a policy after 3 years and before its maturity would cost you to losing your capital substantially. The policy issuer would refund only a certain portion of the total premiums paid by you;
- Partial accumulated bonus: When a LIC policy is surrendered before maturity or after completion of 3 years, the life insurer is liable to pay only a fraction of the accumulated bonus as envisaged in the policy documents.
- Jeopardising financial dreams: If you surrender your LIC policy before its maturity, you are simply jeopardising your financial dreams such as buying a house, marriage, child’s education, buying a car and many more that you bought the policy for.
Types of surrenders in a traditional LIC Policy:
As I said earlier that to be able to surrender LIC policy, one has to continue the policy for at least 3 years, otherwise, you would not get any amount back if it is surrendered before 3 years.
This is really very painful. Is not it? But it is obvious that a traditional LIC policy if not continued till maturity, it will cost you more and your return on earning sometimes become negative(zero).
Now let us see what are the surrender value for traditional LIC policy once it is surrendered after 3 years but before maturity.
1. Guaranteed Surrender Value:
Once a policy has been continued for at least 3 years, i.e. the policy is in vogue for at least 3 years, a policyholder becomes eligible to receive 30% of the premiums so paid till surrender as the Guaranteed Surrender Value(G.S.V).
However, this 30% does not include the premiums so paid for the first year of the policy buying and any premiums paid towards accidental benefits or any term rider.
Since it returns back 30% of the total premiums paid excluding certain conditions with assurance, this is therefore called guaranteed LIC policy surrender after 3 years but before maturity.
Indicative Guaranteed Surrender Value Calculator
GSV=(Total premium paid- premium paid for the first year) X 30%
| Policy surrendered | % of the premium paid |
| After 3 years | 30% of premium paid(less 1st year premium) |
| After 5 years but less than 8 years | 50% of premium paid(less 1st year premium) |
| After 8 years | 65% of premium paid(less 1st year premium) |
| 2 years to maturity | 90% of premium paid(less 1st year premium) |
2. Special Surrender Value:
Special Surrender Value is non-guaranteed surrender value. In this case, the surrender value is little different from the GSV. Special Surrender Value is not guaranteed but it is certainly higher than the Guaranteed Surrender Value.
Special surrender value depends on the number of years of premiums paid and the balance period of maturity. In general, the following indicative Special Surrender Value is considered for termination of LIC policy before maturity:
Indicative Special Surrender Value Calculator
| Policy continued | Special Surrender Value |
| More than 3 years but less than 4 years | 80% of the total maturity sum assured |
| More than 4 years, but less than 5 years | 90% of the total maturity sum assured |
| More than 5 years | 100% of the total maturity sum assured |
Special Surrender Value = [(Basic sum assured X Number of premiums paid/ Number of premiums payable) + accrued bonus] X applicable surrender value factor.
This surrender value factor is decided by the LIC based on insurance product types and its not a fixed formula. The SVF increases with policy terms. The more you pay the premiums the more this SVF value increases.
This SVF also varies from company to company and not necessarily it will be mentioned in the policy brochures. Some insurance companies prefer to keep this factor a secret one.
What is Paid Up Value? What Does it Mean?
To understand LIC Policy Surrender value and how it works, first, we all need to understand what is paid-up value. When you have completed a LIC Policy for more than 3 years but did not surrender the policy i.e. the policy is still in force, it is called a paid-up value policy.
This simply means the policy is in continuation but with reduced sum assured. This is quite better than surrendering your policy.
Look, buying an endowment LIC policy is a long term investment with meagre amount of life coverage. It is never recommended to surrender or close your policy before maturity.
Further, it is also not recommended to stop your existing LIC policy with having paid-up value, unless investment in other instruments would fetch better returns from this shifting.
In both the above case, you are simply losing your financial objectives and also having inadequate or reduced life coverage for paid-up value policy if you don’t continue your life insurance policy.
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Difference between Surrender Value and Paid-up Value
A surrender value is different from the paid-up value and following are the differences between the two:
| Surrender Value | Paid-up Value |
| Once surrendered, the policy is stopped and ceases to receive all policy benefits | The policy is not terminated and still in force. Therefore all policy benefits are continued |
| The surrender value is paid immediately | It is paid either on death or on maturity |
| No life coverage exists for surrendered policy | Paid-up value continues to provide life coverage |
| The surrender value is always less than the paid up value | Paid up value is always higher than the surrender value due to policy being continued for longer tenure |
How to Surrender LIC Policy?
Many a time we find that people searching the internet the term How to surrender LIC policy online. But I would like to reiterate that LIC policy can never be surrendered online. At least this is not possible as of now. We don’t know it may be possible in future.
So, visiting the servicing branch physically is the only way to surrender your policy. It may so happen that you purchased a LIC policy through an agent and it has been processed by the nearest LIC branch.
This is called a servicing branch. For surrendering the policy itself, you have to visit the nearest servicing branch through which you previously purchased the policy.
All the formalities will be executed by the servicing branch pertaining to the surrender of LIC policy. Your application for surrendering LIC policy would be processed only when all the relevant documents are verified with the records kept at their end.
A policyholder must follow the below key points for LIC Policy surrender:
- A LIC policyholder should collect from the nearest LIC branch the Form No- 5074, i.e. Application for Surrender/ Discounted value;
- Form No-5074 should be filled properly and submitted with the relevant documents;
- Once the form and the documents are submitted, the LIC would execute the process of surrendering the policy;
- When all the formalities of policy surrender are completed and the surrender request is accepted, the surrender value shall be credited to the bank account of the policyholder directly.
Download Form No-5047 below
Documents Required to Surrender LIC Policy
The policyholder must carry the following documents to surrender LIC policy :
- Policy Surrender application Form No- 5074;
- Application for surrendering the policy;
- Bank mandate(NEFT/RTGS) for crediting the surrender value; directly to the policyholder’s bank account;
- PAN Card copy;
- The original policy bond;
- A cancelled cheque for direct bank transfer.
LIC surrender value calculator with example
LIC surrender value calculator – Guaranteed Surrender Value option:
Example: Mr Ganesh purchased a traditional LIC policy from an agent in September 2017 with a sum assured of ₹10 Lakh and the annual premium is ₹50,000/-. The maturity of the policy is 20 years. After paying the premium for 3 years, now Mr Ganesh wants to surrender the policy in 2021. Calculate how much surrender value he will get if the policy is surrender just after 3 years.
LIC surrender value calculator:
The basic eligibility criteria for getting the surrender value is the payment of premium for 3 consecutive years. So, here Mr Ganesh is eligible to surrender his LIC policy and getting the surrender value as he continued the policy for 3 years.
Mr Ganesh will receive the following amount as the Guaranteed Surrender Value(GSV):
| Particulars | Details |
| Basic sum assured | ₹10 Lakh |
| Policy term | 20 years |
| Annual premium | ₹50,000 |
| Guaranteed Surrendered Value | 30% of (50,000X3)-50000=₹30,000 |
Therefore you can check that from the above calculation that Mr Ganesh will receive ₹30,000 as GSV for surrendering the policy after 3 years but he paid a total premium of ₹1,50,000. So, he lost a huge amount by surrendering the policy before its maturity.
LIC surrender value calculator-Special Surrender Value(SSV) option:
Example: Mr Kohli took a policy for 20 years for an annual premium of ₹40000 and sum assured is ₹1500000. He surrendered the policy after 4 years. The accumulated is ₹60000. The surrender value factor for 4th year is 0.30. How much special surrender value he would receive after 4 years?
Therefore the following special surrender value(SSV) will be received by Mr Kohli:
| Particulars | Details |
| Basic sum assured | ₹15 Lakh |
| Policy term | 20 years |
| Annual premium | ₹40,000 |
| Premium paid for | 4 years |
| Premium payable for | 20 years |
| Surrender value factor | 0.30 |
| Special Surrendered Value | 0.30 (4/20X₹15Lakh)+60000=₹1,08,000 |
Here this is important to note that the surrender value factor is % of paid-up value plus accumulated bonus. For the first three years, this SVF is zero(0). 4th year onwards this factor increases. So, the rule is the longer the policy is continued the more the value of SVF is.
Conclusion on How to Surrender LIC Policy
To conclude, I would like to reiterate that it is very essential to ask yourself whether a policy should be surrendered before its maturity rather than knowing how to close LIC policy.
Because surrendering a LIC policy before maturity both for surrender and paid-up policy is going to cost you a huge financial loss. It is always advisable to surrender a policy when the proceeds from the surrender can be invested in another product that can fetch you a higher return than the original policy if it is continued till maturity.
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