Surrendering a policy
Surrendering ends the policy and pays you whatever value has accumulated. It is your right, and sometimes it is the correct decision — a policy that was mis-sold, or one whose premium you genuinely cannot sustain, is not improved by holding on.
But it is irreversible, and the value in the early years is well below what you have paid in. Before you start, it is worth ruling out the two alternatives that solve most of the situations people surrender for.
When this applies
- The policy has run long enough to have acquired a surrender value — surrendering before that generally returns nothing
- You have already considered making it paid-up instead, which keeps reduced cover alive at no further cost
- You have already considered a policy loan, if the need for money is temporary
What is typically required
A starting point, not a definitive list — LIC's exact requirement can vary by branch and by the specifics of your policy. Confirm before you travel.
- The original policy document
- A surrender discharge form
- Identity and address proof
- Bank account details for the payout — usually a cancelled cheque or passbook copy
- PAN, which is relevant if any tax is deductible on the proceeds
The order to do it in
- 1Ask LIC or KNATRA for the current surrender value in writing, so you are deciding on a figure rather than an assumption
- 2Compare it against making the policy paid-up, and against a loan if the need is short-term
- 3If you still want to proceed, submit the discharge form with the documents above
- 4LIC processes the surrender and credits the proceeds to your registered bank account
- 5Keep the surrender confirmation — the tax position in the year of surrender may need it
What has to go through LIC directly
The surrender value is computed by LIC under the policy contract, and the payout is made by LIC. Nobody can negotiate the figure. What KNATRA can do is get you the exact number and make sure you have compared it against the alternatives before you sign anything irreversible.
Watch out for
- Surrender is permanent. The cover ends, and buying it back later means a new policy priced at your current age, with fresh underwriting.
- The early-years surrender value is low for a structural reason, not an unfair one — the first years’ premiums largely funded the cover and the cost of setting up the policy, so little has accumulated.
- There can be a tax consequence. Where a policy is surrendered before the qualifying period, deductions claimed on earlier premiums can be added back to your income in the year of surrender. Confirm your own position before assuming the proceeds arrive untaxed.
Common questions
- How much will I get if I surrender my LIC policy?
- Less than you have paid in, in almost all cases, and considerably less in the early years. The guaranteed surrender value is a percentage of premiums paid that starts low and rises the longer the policy has run. Ask LIC or your advisor for the current figure in writing rather than estimating it — the exact number is what the decision should turn on.
- Is making a policy paid-up better than surrendering?
- Often, yes. Making it paid-up stops the premiums but keeps the policy alive with a reduced sum assured, which still pays out on death or at maturity. Surrendering ends the cover entirely for a payment now. If the problem is that you cannot afford the premium rather than that you need cash immediately, paid-up is usually the better answer.
Related
Need this done rather than explained?
Full servicing assistance — preparing the paperwork, following it up with the branch, and chasing it to completion — is for policies bought or serviced through KNATRA. If your policy is with another agent or was bought directly from LIC, everything on this page still applies to you, and you are welcome to ask for help with a specific case.