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How to surrender life insurance policy ?

surrender LIC policy

Do you want to surrender life insurance policy from LIC or any other insurance company, then first get the surrender value of your policy. Surrender value is the amount paid by life insurance company to individual on termination of life insurance policy before maturity. Policy can be surrendered only after payment of premium for at least three years.

Insurance company will pay higher of guaranteed surrender value or special surrender value, plus eligible vested bonus if you are eligible for any. The surrender value may be less than total premium paid you have paid till date. Term life insurance policy has zero surrender value.

  1. Guaranteed Surrender Value: This value is equal to 30% of the total premiums paid excluding premiums for the 1st year and all extra premiums.

  2. Special Surrender Value: This value will depend on the duration for which premiums have been paid and the policy duration completed on the date of surrender. Insurance companies review surrender value under its plans from time to time depending on the economic environment, experience and other factors.

  3. Vested Bonus: The vested bonuses is added to surrender value generally only after the policy has completed five years from the date of commencement. The rate of bonus allocated depends upon plan, term of policy and surplus profit generated by insurance company.

  4. Terminal Bonuses: Terminal Bonuses are payable only in case of death and maturity claims and not in case of surrender of policy.

Also Read: How much life insurance do i need ?

Calculation method for Special Surrender Value

Paid up value= {(No of premium paid/No of premium payable) x Sum assured} + Vested bonus

Example: Policy tenure is 20 years for sum assured of Rs 1, 00,000 and you decide to surrender after completion of 10 years. Vested bonus is Rs 20,000.

Paid up value = {(10/20) x 1, 00,000} +20000

= 50,000 + 20,000


Surrender Value = (Paid up value) X (Surrender value factor)

Surrender value factor will vary from insurer to insurer and depends on tenure and premiums paid.

Steps to surrender your life insurance policy

Step 1: Register on the site of your insurance company and login to link your policy.

Step 2: Check the surrender value of your policy. If you are not able to get surrender value online, then visit office of your insurance company to get surrender value.

Step 3: Depending on surrender value decide if you wish to surrender the policy. If you feel that surrender value is too low and you do not wish pay further premiums, then you can convert your policy to paid-up policy.

Paid up policy: By making policy paid-up, the policy remains in force with sum assured reduced to amount equivalent to sum assured multiplied by the ratio of the premiums paid to the premiums payable under the policy. Policy can be converted to paid-up policy after payment of minimum three annual premiums. The Maturity Benefit for a paid-up policy shall be the Paid-up Sum Assured plus Simple Reversionary Bonus accrued before the policy become paid-up.

Step 4: To surrender your policy, submit below listed documents at your insurance company office.

  1. Original Policy certificate

  2. Copy of any one valid photo id signed by the policy holder (Passport, Voter's Identity Card, Driving license, Ration card with photo)

  3. Copy of signed cancelled cheque

  4. Surrender form.

  5. PAN card

IRDA has now made it compulsory for all policy holders to register their bank account details to receive all policy pay-outs directly into their bank account.

Step 5: Maximum time required to process your surrender value processing will 10 days as per IRDA guidelines.

Tax treatment on surrender of life insurance policy

Proceeds from surrender of life insurance policy will be exempt from income tax if policy has completed minimum 5 years and annual premiums have been paid for minimum 5 years. If policy is surrendered before completion of 5 years then deductions claimed section 80C in previous years will void, and all the claimed deductions will be added to the income for the year in which surrender value has been paid.

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