Many people buy LIC policies while not knowing features and edges. However, once few days we feel such LIC policies are irrelevant. Hence, we would like to get rid of such policies. the answer is to surrender such LIC policies. how to Surrender LIC Policy after 3 years or before maturity?
What is the Meaning of Surrender of Life Insurance Policy?
It is the choice to exit from life insurance product before maturity whereby policyholder can get the amount that is named as Surrender value. a regular premium policy are eligible for surrendering once the policyholder has paid the premiums continuously for 3 years.
As I said, to be eligible for surrender the policy should complete 3 years. By surrendering LIC policy, you’ll not be in profit as they pay you some a part of the total accumulated bonus and also the premium you paid.
Implications after the Surrender LIC Policy
1) you’ll loose the life insurance Protection available from the policy. As surrender of LIC policy is considered because the closure of the contract between you and insurance company.
2) Tax advantages availed under Sec.80C of IT Act are reversed if the policy is terminated/cease to be in force inside 2 years for traditional products and 5 years for ULIP products when the date of commencement of policy.
Types in the Surrender LIC Policy
There are two types of Surrenders. Let us discuss both the types.
1) Guaranteed Surrender Value
If your policy is eligible for this surrender value then it to be mentioned within the policy bond and is payable once the completion of 3 years. it’s typically 30 minutes of the premiums paid, excluding premium for the primary year. It conjointly excludes any extra premium paid for riders, taxes and any bonus that you simply could have received from the LIC.
However, the percentage of this guaranteed Surrender value can depend upon the Policy Term and policy year during which the policy is surrendered.
Let us say your yearly premium is Rs.1 lakh and you paid it for 4 years.
Total Premium Paid=Rs.4 lakh.
Premium excluding first year=Rs.3 lakh.
Then the guaranteed Surrender value are 30 minutes of the Premiums Paid (excluding first Year Premium). Hence, 30% of Rs.3,00,000 will be Rs.90,000 is what you get.
Remember, this guaranteed Surrender worth won’t add the already accrued bonus.
2) Special surrender value
It is calculated as below. But before that, you must understand one more term called Paid Up Value.
What is the meaning of Paid Up Value and Total Paid Up Value?
If premiums are paid for a minimum of 3 consecutive years and any subsequent premium has not been paid inside the grace period, then such lapsed policies are called paid up policies. The sum assured is reduced to a proportionate sum assured that was available during the policy buying.
For example, if sum Assured is Rs.5 lakh and therefore the total number of premiums payable is 20 years and premium payable is yearly and allow us to say premiums are paid for 10 years. After that, you discontinue the policy.
Such discontinued policy is named paid up policy. this can be calculated as below.
Paid Up Value=(No. of Premiums Paid/No. of Premiums Payable) * sum Assured.
Paid Up Value=(10/20) * Rs.5 lakh=Rs.2,50,000.
So from the 11th year, the policy can continue with sum assured of Rs.2,50,000 solely instead of original Rs.5,00,000. along with this paid up sum assured the bonus already accrued up to the 10th year are added. this can be known as Total Paid Up value. thus Total Paid Up Value=Paid Up Value+Accrued Bonus.
What is the meaning of Special Surrender Value?
In simple terms, Special Surrender Value is the % of Total Paid-up Value and it is calculated as below.
Special Surrender Value=(Sum Assured * (No. of premiums paid/No. of premiums payable) + total bonus received)* surrender value factor.
In simple, Special Surrender Value=Total Paid Up Value*Surrender Value Factor.
This Surrender Value Factor changes based on the term of the policy and many other things. Usually, this value is zero for the first 3 years. Hence, for the particular year and for your policy, you have to check with LIC for this data.
What is the difference between Paid Up Value and Surrender Value?
I created below table for your understanding of the difference between the meanings of Paid Up Value and Surrender Value.
If LIC declares any future bonus or guaranteed additions to the product, then your policy isn’t eligible for such future bonus or GA. you may receive only the total Paid Up amount at maturity or death of policyholder.
Total Paid Up value are payable to you at maturity or your nominee (if your death occurs during the policy period).
Hope you now understood the concept of Paid Up Value, Total Paid Up Value and Surrender Value.
How to Surrender LIC Policy?
First keep in mind that as of currently Surrendering LIC policy isn’t possible online. Also, you’ve got to surrender the LIC policy at your servicing LIC branch solely. servicing branch is also the branch wherever you purchased the policy. Otherwise, if you modified the branch, then that particular LIC branch represent the servicing branch for you. the reason for this can be, your all policy documents like proposal forms, loan details and all other details are available at servicing branch only.
Documents Required for Surrender LIC Policy
- Original Policy Bond
- Download LIC Policy Surrender Form No.5074. Take the printout and go with this form.
- Bank cancelled cheque leaf (your name should be printed on cheque) or bank passbook photocopy. Because now LIC issue the payment directly to beneficiary bank account. LIC stopped issuing cheques.
- Fill LIC’s NEFT Form, if you are not using the above said Surrender Form and submit the same.
- Go with original ID Proof like Aadhaar, Driving License or PAN Card. They verify and take the photocopy of the same and return the original one.
Once you submit the necessary documents, then within 5-10 days they transfer the fund to your bank account.