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How to Surrender an LIC Policy?
Thinking of surrendering your LIC policy? LIC allows policyholders to surrender eligible life insurance plans before maturity, provided the policy meets the minimum surrender conditions. However, surrendering a policy early may decrease the amount you receive and end your life insurance coverage. Questions often arise about surrendering a policy before its term ends. Does LIC allow policyholders to surrender a policy, and what is the process?
Yes, LIC allows policyholders to surrender a plan before its term. However, surrendering a policy is generally not ideal because the surrender value received is proportionately low. This guide explains the LIC policy surrender process, eligibility, surrender value, required documents, processing time, and the key factors you should consider before making your decision.
What Is Surrender of an LIC Policy?
Let’s understand what surrendering an LIC policy means. Policyholders often buy policies without fully understanding the terms and conditions, which can lead to surrendering the policy before maturity. The amount policyholders receive after opting out is known as the LIC policy surrender value.
There are several reasons why people surrender their policies, such as finding a better plan or facing a financial crisis. Note that a policyholder can only surrender a policy after paying premiums diligently for at least three years.
Things to Know Before Surrendering Your LIC Policy
Before surrendering your LIC policy, consider these important life insurance questions:
- How much surrender value will you receive?
- Is your policy eligible for surrender?
- Can you surrender your LIC policy online, or do you need to visit a branch?
- Is surrendering the best option, or should you choose policy revival or a paid-up policy instead?
- Will surrendering affect your life insurance coverage and future benefits?
When Are Policyholders Allowed to Surrender Their LIC Policy?
Specific guidelines apply when surrendering an LIC policy. Policyholders cannot surrender their policy at any time they wish. Generally, a policy can be discontinued after at least three years from its issue date. This duration may vary depending on the type of LIC insurance plan and the premium payment term. Here’s when policyholders can surrender their LIC policy:
Single-Premium Plans
Under single-premium plans, policyholders pay the entire premium at the time of purchase. They can surrender their LIC policy at least two years after the policy issue date.
Limited/Regular Premium Plans
For limited and regular premium plans, terms and conditions vary based on the policy tenure. If the policy term is:
- Ten years or less, the policyholder can surrender the policy after two years.
- More than ten years, the minimum duration to surrender the LIC policy is three years.
Who Is Eligible to Surrender an LIC Policy?
Eligibility criteria for surrendering an LIC policy:
- You must be the authorized policyholder.
- Premiums must have been paid for at least three full years.
- The policy must have a bonus component, as pure term policies generally have no surrender value.
- For plans with a term of 10 years or less, two full years of premiums are sufficient.
What Is the Procedure for Surrendering an LIC Policy?
While there are no specific key guidelines for surrendering a policy, policyholders wishing to discontinue their policy or ULIPs before the chosen term can do so via LIC’s official website or by visiting a nearest LIC office branch.
Documents Required for Surrendering an LIC Policy
While surrendering a policy is generally not advisable, if you choose to proceed, you will need to provide the following documents:
- Original LIC policy documents.
- Filled LIC surrender form (available on LIC’s official website).
- A cancelled cheque from the policyholder’s registered bank account.
- Government-issued ID proof (e.g., PAN Card, Driver’s License, Aadhaar Card, Voter ID, Passport).
- Bank account details.
- LIC NEFT Mandate Form.
- Written application to LIC stating the reason for surrender.
What Are the Types of LIC Policy Surrender?
There are typically two types of surrender values: Guaranteed Surrender Value and Special Surrender Value. The surrender value received when discontinuing a policy is proportionately lower than the total premium paid. Additional benefits like bonuses, tax benefits, and premiums paid for riders are excluded when estimating the surrender value.
Guaranteed Surrender Value
Under the Guaranteed Surrender Value (GSV), policyholders must have paid premiums for at least three years. To receive the GSV, the policy must be surrendered after three years. The surrender value is 30% of the total premiums paid until the surrender date, excluding additional premiums for add-ons or the premium paid for the first year.
Special Surrender Value
The Special Surrender Value is usually higher than the Guaranteed Surrender Value. If premiums are paid for three to four years, LIC provides 80% of the total maturity sum assured. If premiums are paid for five years, 90% of the maturity sum assured is provided. If premiums are paid for more than five years, the policyholder receives 100% of the maturity sum assured.
