What is LIC Surrender Value And How To Calculate it?

Life insurance policies are a great way to secure the financial future of your family. 

You choose an insurance policy > pay premiums > once the chosen terms get completed, the policy gets matured, and you receive all the eligible benefits and coverages of the plan. Or, in case of a policyholder’s untimely demise, their family receives the sum assured. 

Sounds like quite a seamless journey, right?

However, life has its own ups and downs, and we never know what the future holds. 

Sometimes, we have to adjust our budgets along the way. There may occur a situation where you have to discontinue the LIC policy plan as it doesn’t fit your finances anymore. Well, that’s certainly where the concept of surrendering your LIC policy comes in! 

More than around half of the life insurance policies in India are discontinued before they reach maturity.

Well, the reasons behind the discontinuity of insurance plans are indefinite. But the most prominent one is the policyholder not being able to pay the premiums. Hence, they surrender the policy.

If you are also considering surrendering your LIC policy, this blog is a must-read for you. For those who don't know, insurers pay “surrender value” as a benefit to the insured if they decide to surrender the policy. 

Here, we’ll be understanding the LIC surrender value and how it is calculated. Let’s begin! 

What is LIC Surrender Value

LIC Surrender Value is the amount that you are entitled to receive if you choose to surrender and discontinue your LIC policy before the completion of policy terms. But wait, it’s not that easy. You must pay at least two to three years of policy premium if you want to be eligible for the surrender value benefit. 

Basically, you receive some amount of your premium money back even when you choose to discontinue the LIC policy! 

Types of LIC Surrender Value

Generally, the insurer provides two types of surrender value to the insured, i.e., Guaranteed Surrender Value (GSV) and Special Surrender Value (SSV). GSV is fixed and written already in your policy document, but SSV varies according to several factors. 

• Guaranteed Surrender Value (GSV): If you pay premiums for at least three years, you can get back 30% of all premiums paid. Note: this sum does not include first-year premiums and surcharges.
• Special Surrender Value (SSV): SSV is relatively more flexible. It depends on how long you held the policy, the amount summed and any bonuses included. SSV is usually higher than GSV; however, there’s no guarantee that you’ll be eligible for it. 

Importance of Finding LIC Surrender Value

Even when you don’t have any plans for surrendering your LIC policy now, it’s important to calculate the LIC surrender value as it will give you an understanding of the value of your ongoing LIC policy. Moreover, you get an idea of when might be the right time if you have to surrender your policy in the future. 

Types of LIC Policies with Surrender Value

• Endowment Plans: Under these plans, a lump sum amount is paid to the insured on the maturity of the plan. If they wish to surrender after three years of premiums being paid, a surrender value is given to them. 
• Whole Life Plans: These plans include lifelong coverage with a death benefit payable to the nominee. This maximum life insurance protection also provides a surrender value if policyholders choose to surrender the policy. 
• Money Back Plans: In money-back plans, regular survival benefits are offered to the policyholder during the term, and a lump sum amount is also given at maturity. These policies also provide policyholders surrender value benefits if they wish to surrender the policy.  
• Term Assurance Plans: Under this plan, there’s no maturity benefit, but only beneficiaries receive the death benefits in case of policyholder’s death. In Term Assurance or Insurance Plans, no surrender value is offered.

How to Calculate the Surrender Value

Here’s how you can calculate the LIC Surrender value: 

1. Guaranteed Surrender Value

Let us understand the Guaranteed Surrender Value with an example – 

Suppose Yuvraj has opted for the LIC Bima Jyoti plan. As per the chosen policy terms, he has to pay an amount of ₹40,000 per year for the next 30 years. However, if Yuvraj wants to surrender the LIC policy after three years, the Guaranteed Surrender Value for his LIC Bima Jyoti plan will be calculated as follows – 

GSV = Surrender value factor × (Annual payment × Number of years paid)

In Yuvraj’s case:

GSV = 30% × (₹40,000 × 3) = ₹36,000.

2. Special Surrender Value

Want to check how much Special Surrender Value you are getting? Here’s how –

For example, Yuvraj buys an LIC Dhan Sanchay policy in which he’ll be given a guaranteed sum of ₹15,00,00 after 15 years of paying ₹50,000 each year. In the fourth year of the policy, he decides to discontinue and surrender it. In this case, the SSV will be calculated as follows –

SSV = (Proportionate Guaranteed Sum + Bonuses) × Surrender Value Percentage

Calculating how much the policy has grown –

₹15,00,000×(154​)=₹4,00,000

Now, let’s assume the surrender value percentage is 40%, and the collected bonus is ₹40,000. 

Then, the SSV collection will be:  SSV=(₹4,00,000+₹40,000)×40%= ₹1,76,000

The total Special Surrender Value that Yuvraj will be receiving is ₹1,76,000.

How to Surrender LIC Policy?

If you are also planning to surrender your LIC policy, here’s how you can do it —

Step 1: Head to the nearest LIC branch in your locality or go to the official LIC portal and log in with your credentials.

Step 2: Download the "Surrender Discharge Voucher" (Form No. 5074).

Step 3: Properly fill out the Surrender Discharge Voucher form and submit it along with all the necessary documents related to the insurer.

Step 4: Once your LIC policy surrender request gets accepted, the branch will process your file. You’ll receive the appropriate surrender value in 7-10 business days.

Factors Influencing Surrender Value

There are several factors that majorly influence the surrender value. Let’s understand –

• Policy Age: The longer you wait, the higher you get! As your policy matures, it will generally lead to a higher surrender value. 
• Policy Type: As discussed earlier, not all policy plans offer a surrender policy. Moreover, endowment and whole-life plans relatively offer higher surrender value. 
• Surrender Charges: Insurance companies often charge a fee when you surrender your policy, especially in the initial years. This fee can significantly reduce the surrender value.
• Premium Payment Mode: Regular premium plans often have higher surrender values than single premium plans. Plus, missing payments or having a policy in lapse can negatively impact the surrender value.
• Economic Conditions: Market fluctuations can impact the surrender value, especially for ULIP (unit-linked insurance plans). 

Documents Required to Surrender LIC Policy

Here are the necessary documents that you need to submit if you wish to surrender your LIC policy – 

• Original copy of your ongoing LIC policy.
• Print out of completely filled LIC Surrender Discharge Voucher - form 5074
• One cancelled cheque from the bank account of the registered policyholder.
• LIC NEFT Mandate form.
• A hand-written application to the LIC office stating the reason for the surrender of your LIC policy.

Conclusion

Surrendering your LIC policy is a simple yet effective plan for those times when your financial priorities change, and you no longer find yourself in the position to pay a hefty policy premium. However, it surely comes up at the cost of losing the complete coverage and benefits of your LIC policy. 

We certainly hope that this blog helped you gain a deep insight into the ins and outs of the LIC Surrender Value. But, before you make any significant move on your policy, we strongly recommend you consult an insurance advisor at +91-7551196989 and understand all the consequences.  

Frequently Asked Questions (FAQs)

Ques 1. How much will I get if I surrender my LIC policy after 1 year?

Ans. As per the LIC Surrender Value terms, you are not eligible for any LIC surrender value if you want to surrender your LIC policy plan after 1 year.  You have to pay premiums for at least 2 to 3 years to get any LIC surrender value (exact timeline may vary according to policy terms). 

Ques 2. Is it good to surrender an LIC policy?

Ans. Surrendering your ongoing LIC policy is not a good idea at all if it isn’t about unforeseen circumstances. By surrendering your LIC policy, you will lose all the related benefits and coverages. Moreover, if you decide to buy another LIC policy plan in the future, you’ll be charged higher.

Ques 3. How much time it takes to get money from LIC for surrender?

Ans. First, you have to submit all the essential documents along with the LIC Surrender Discharge Voucher. The next step is waiting for your request to get approval. Once approved, the surrender value will be credited into your associated bank account within 7-10 business days. 

Ques 4. Will I get a bonus if I surrender my LIC policy?

Ans. Absolutely, if you are eligible for the bonus on your LIC policy plan, the insurer will pay you an accumulated bonus along with the guaranteed surrender value. 

Ques 5. How much do I lose if I surrender my LIC policy?

Ans. If you pay premiums for at least three years and decide to surrender the policy, you will only get back 30% of all premiums paid. However, this does not include first-year premiums and surcharges. The rest of the premium paid within three years will be lost.