Surrendering an LIC Policy

When you are allowed to surrender

• ·A non-linked policy acquires a surrender value only after enough premiums have been paid. Under IRDAI rules, that is after two full years of premiums for a policy with a premium-paying term of ten years or more, and after one year where the premium-paying term is shorter.
• ·Before that point there is no surrender value at all. Stopping premiums simply lapses the policy — and a lapsed policy pays nothing unless it is revived or converted to paid-up.
• ·ULIP policies follow separate rules and refund the fund value rather than a traditional surrender value, subject to a lock-in period.
• ·If the policy is assigned, or held under the MWP Act, the surrender needs the assignee’s or trustee’s consent. This is the step that most often stops a surrender midway.
• ·Any outstanding policy loan, plus interest, is deducted from the surrender value before anything is paid out.

What LIC will actually pay you

There is no single percentage that applies to every policy, and any page quoting one number for all LIC plans is guessing. What LIC pays is the higher of two calculated figures:

• ·Guaranteed Surrender Value (GSV) — a percentage of the total premiums paid, excluding the first year’s premium and any extra or rider premiums. The percentage is fixed by the policy’s vintage and is printed in the policy document.
• ·Special Surrender Value (SSV) — an actuarial figure LIC computes for the specific policy. For older policies, especially those bought before 2019, the SSV is frequently the higher of the two, which is why an early surrender can be worth more than the GSV table suggests.
• ·Bonuses already declared on a with-profits policy are surrendered at their own reduced factor, not at full value.
• ·The exact rupee figure is quoted by LIC, not estimated by an agent. Anyone who tells you a precise amount without the policy in hand is guessing.

Three options that usually beat surrender

Work through these in order before you sign a surrender form. For most people, one of them fits — and each one preserves something the surrender destroys.

• ·Make it paid-up. If at least two years’ premiums are paid, you can stop paying and leave the policy in force at a reduced sum assured, payable at the original maturity date. You keep life cover and you keep every bonus already declared. This is the single most under-used option in LIC servicing.
• ·Take a loan against the policy instead. If the need is temporary — school fees, a medical bill, a business gap — a policy loan keeps the cover and the maturity date intact, and costs less than a personal loan. See the policy loan page for the mechanics.
• ·Revive it, if it has already lapsed. A lapsed policy can usually be revived within the revival period by paying arrears with interest, sometimes with a health declaration. Reviving is almost always cheaper than buying equivalent cover today at an older age.
• ·Keep it and re-plan around it. Sometimes the policy is fine and the premium is simply mis-sized against the current income. A review can rebalance the family’s cover rather than destroy one leg of it.

What you give up when you surrender

• ·The life cover ends the day the surrender is processed. If something happens to the life assured afterwards, nothing is payable — and re-buying cover at a later age costs more, or may not be available at all after a health event.
• ·Every future bonus is forfeited. A with-profits policy is designed so that later years are the valuable ones; surrendering in year four or five captures the worst part of that curve.
• ·The maturity date disappears. Money that was going to arrive at a planned point is now arriving early and at a discount — which only helps if you have a better use for it than the original goal.
• ·Tax treatment can change. Under Section 10(10D), the exemption on maturity and surrender proceeds can fail where the annual premium exceeds the threshold in force for the policy’s issue year. A surrender can therefore be taxable where the maturity would not have been. Confirm the position for your policy year with your chartered accountant.

How a surrender is processed, if you decide to go ahead

• 1Get the surrender value quoted first, in writing, from the servicing branch. Never surrender on a verbal estimate.
• 2Check whether paid-up, a loan or revival produces a better outcome for your actual need. This is a ten-minute comparison once the numbers are known.
• 3Submit the surrender form with the original policy document, the policyholder’s ID and address proof, and bank details in the policyholder’s own name.
• 4Clear any outstanding loan, assignment or MWP consent before submission, otherwise the request is returned.
• 5Receive the amount by NEFT, usually within a few working days of the request being processed.
• 6Keep the surrender voucher. It is the record of what was paid and the only document that settles a later dispute.