Surrendering LIC policy - procedure and losses to the LIC policyholder

Surrendering an LIC Policy: Procedure and Losses

Surrendering a Life Insurance Corporation (LIC) policy means terminating it before maturity. The policyholder receives a surrender value, which is significantly lower than the total premiums paid. The procedure involves submitting a surrender request at the LIC branch, along with the original policy document, identity proof, a canceled cheque, and a surrender form. The policy must have acquired a surrender value, usually after three years of premium payments.

Losses Incurred

1. Loss of Life Insurance Cover – Once surrendered, the policyholder loses life insurance protection, leaving dependents financially vulnerable.
2. Reduced Payout – The surrender value is much lower than the total premiums paid. It consists of the guaranteed surrender value and, in some cases, a special surrender value.
3. Loss of Bonus Accumulation – Policies like endowment or money-back plans accumulate bonuses over time. Surrendering early forfeits future bonuses and a large portion of accrued bonuses.
4. Tax Implications – If tax deductions were claimed on premiums under Section 80C, surrendering within five years may result in the benefits being reversed.

Surrendering should be a last resort. If financial difficulties arise, policy loans or paid-up options can be explored instead of surrendering the policy.