When it comes to long-term savings and life insurance, LIC (Life Insurance Corporation of India) has been a trusted name for decades. However, life is unpredictable, and you may find yourself in a situation where you need to surrender your policy before its maturity. That’s when understanding the LIC surrender value becomes crucial.
In this guide, we will explain everything you need to know about LIC surrender value, how it’s calculated, its benefits, and more.
The surrender value of a LIC policy is the amount you receive if you decide to terminate your policy before it reaches its maturity. While LIC plans are designed to be long-term investments, there are times when policyholders may want to exit early, either due to financial difficulties or other reasons. When you surrender your policy, you do not receive the full maturity benefits, but you get a portion of the premiums paid.
The guaranteed surrender value is the minimum amount that you are entitled to upon surrendering your policy. It is calculated as a percentage of the total premiums paid (excluding taxes, extra premiums, and rider premiums) and usually depends on the number of years you have paid the premiums.
The special surrender value is generally higher than the guaranteed surrender value and is calculated based on the accrued bonus, duration of the policy, and the policy’s premium paying term. LIC uses this method to offer a higher value to policyholders in good-standing policies.
To calculate the surrender value of your LIC policy, you need to consider the following formula:
Surrender Value = (Total Premiums Paid × Surrender Value Factor) + Bonus
Total Premiums Paid: This includes all premiums you have paid up until the point of surrender, excluding any extra premiums or riders.
Surrender Value Factor: This is a percentage, which increases as the policy progresses in years.
Bonus: LIC policies often come with bonuses that accumulate over time. Depending on how long you’ve held the policy, the surrender value will include a portion of the accrued bonuses.
Suppose you have a LIC policy with an annual premium of ₹20,000 and have been paying the premiums for five years. If the surrender value factor is 30%, and the accrued bonus is ₹10,000, your surrender value would be calculated as follows:
Thus, the Surrender Value = (₹1,00,000 × 30%) + ₹10,000 = ₹30,000 + ₹10,000 = ₹40,000.
It’s important to note that surrendering your LIC policy early in its term may lead to a significant financial loss, as the surrender value in the early years is quite low. Typically, a policy becomes eligible for surrender after completing at least three years of premium payments. Surrendering before this period may result in receiving no payout.
Before surrendering a LIC policy, it’s essential to weigh the pros and cons carefully:
Yes, you can surrender your LIC policy anytime after completing at least three years of premium payments. However, surrendering early might result in a lower payout.
Surrendering results in an immediate payout, but you lose the policy's insurance coverage and long-term benefits. Making it paid-up allows you to stop paying premiums while retaining reduced benefits.
If you stop paying premiums, your policy may lapse. However, if you've paid premiums for at least three years, you may opt to make the policy paid-up.
Surrendering a LIC policy should always be a last resort, as it usually results in financial losses compared to continuing the policy until maturity. If you're facing financial difficulties, explore all your options, such as loans against the policy or making it paid-up. Use the LIC surrender value calculator to make informed decisions, ensuring you balance your immediate needs with long-term financial goals.