How to surrender life insurance policy

At times one may realise that a life insurance policy that was bought for the purpose of tax saving at some point in time is not really adding substantially to one’s insurance cover or investment returns. In such a scenario, one may wish to terminate the policy before its maturity period instead of holding on to the policy. This is known as surrender of the policy, wherein the surrender value of the policy is paid out to the policy holder.

Surrender value

A policy acquires surrender value when the policy is in force and the mandatory lock in period is completed. Typically, a policy with three years of successful premiums paid acquires a surrender value. One can fi nd out the surrender value of the policy on the online portal of the insurance company. It is a percentage of the fund value of the policy. A term policy is a pure insurance policy and does not carry any investment component, and hence does not have any surrender value.

Charges

Surrender charges are deducted at the time of surrender of policy and remaining amount is paid out to the policyholder.

Form and documents

A policy surrender request must be filled up and submitted to the insurance company. The original policy document, a cancelled cheque and self-attested copy of KYC documents need to be enclosed with the application. Reason for surrender may also have to be stated in the form.

Point to note

• Once application for surrender is submitted, it will typically be processed within 7-10 working days.
• When a policy is surrendered, the policy holder loses all the benefits of the scheme, hence it is important to weigh all the pros and cons of surrendering the policy.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)