Understanding LIC Policy Surrender in 2024: Key Factors to Consider

by SMCIB on Wednesday, 07 February 2024

Understanding LIC Policy Surrender in 2024: Key Factors to Consider

As we all know, Life Corporation of India (LIC) offers many individuals a diverse range of life insurance policies. Each policy has a specific tenure, allowing you to choose a term that suits your needs. However, a crucial question arises: What if you wish to terminate their policy before the initially selected term for any reason? How do you surrender your LIC policy?

Surrendering a policy taken for a specific term is entirely possible, and you have the flexibility to opt for policy surrendering at any point in time.

Here, you'll find a comprehensive guide that delves into the surrender process of LIC insurance plans. The guide provides a detailed exploration of the procedures and formalities.

What Do You Mean By Surrendering of LIC Policy?

"Surrendering of LIC policy" essentially means terminating a life insurance policy before its chosen term concludes. When a policy is purchased from LIC, you select a coverage term. After this term is completed, the policy matures, and you are entitled to receive all benefits and coverage as per the agreed-upon terms and conditions. This is the standard process if the policy is held for the entire term.

On the contrary, in case of emergencies or any other reason, if you opt not to continue until the term's end, you can do so through the "surrender" option. Upon surrender, LIC provides the surrender value, explained in detail below, and the coverage is terminated.

Key Reasons For Surrendering Your LIC Policy*:

  • Financial Hardship: Surrendering your LIC policy becomes a viable option if you are facing financial difficulties and find it challenging to meet the premium payments.
  • Better Investment Opportunity: Consider surrendering if you discover a more lucrative policy with better returns and benefits than your current one.
  • Changed Life Goals: If the original purpose for purchasing the life insurance plan is no longer relevant to your current financial goals or needs, surrendering could be a strategic decision.

*LIC allows you the choice to surrender your policy, yet specific terms and conditions apply. Surrendering the policy is not permitted at any arbitrary moment.


How Does Surrendering Affect You?

Deciding to surrender a Life Insurance Corporation (LIC) policy is not a simple move. Factors like the policy type, surrender value, duration of ownership, and your financial standing influence the impact. Let's dive into the typical effects of going through with the surrender:

  • Loss of Life Insurance Coverage: Surrendering your policy means letting go of the life insurance protection it offers. If you still need coverage, you'll need to look into other options.
  • Impact on Financial Plans: If your policy played a role in your long-term financial or retirement strategy, surrendering it could throw a wrench in your plans. It's crucial to explore alternative solutions that align better with your financial goals.
  • Forgoing Future Benefits: Surrendering a LIC policy means saying goodbye to potential future perks like maturity benefits or accrued bonuses. Assess whether the surrender value is worth giving up these potential benefits.
  • Loan Repayment Considerations: If you've taken a loan against the policy, surrendering it might trigger the need to repay the outstanding loan amount. Failing to do so could lead to a reduced surrender value.

Understanding Surrender Values in an LIC Policy

If you've been faithfully paying your premiums and holding onto your policy for a specific duration, it accrues a Surrender Value – an essential concept to grasp. This value represents what the insurer will offer if you decide to surrender your policy after a certain period.

In essence, the surrender value is the sum the insurer provides if you opt to surrender your policy after a specific period. To accumulate a surrender value, it's crucial to ensure all premiums are paid diligently for a minimum of 2-3 years. Keep in mind that this timeframe may differ based on the insurer and the policy terms in place.

Here's a breakdown of the two types of surrender values:

1. Guaranteed Surrender Value

The Guaranteed Surrender Value (GSV) is determined as a percentage of the total premiums paid. This figure can differ among products and insurers. Exclusions from the GSV calculation encompass any additional premiums paid for riders and any bonuses provided by the insurer. It's important to note that these exclusions may vary depending on the specific product.

How Do You Calculate The Guaranteed Surrender Value?

You can calculate the Guaranteed Surrender Value using this formula -

GSV = (GSV Factor X Total Premiums Eligible For GSV) + (GSV Factor X Accrued Bonuses/Loyalty Additions/Guaranteed Additions (if any) 

Let's look at an example to understand the concept better.

Dinesh buys an Endowment Plan from LIC with a sum assured of Rs. 60 Lakhs for a 20-year policy period. Let’s assume he pays an annual premium of Rs. 2.5 Lakhs for 15 years.

Dinesh purchased the Endowment plan to secure his family, but a few years down the line, he decided to pursue his master’s degree, for which he quit his job. He no longer wished to continue his policy, and he paid the premium in the 10th year and, after some time, decided to surrender the plan.

Let's assume that Dinesh's policy has a GSV factor of 30% for his 11th year and that he has accumulated a bonus of Rs. 40,000 so far under this policy.

  • GSV factor:30% (assumed)
  • Total premiums paid: Rs. 2,50,000 x 10 = Rs. 25,00,000
  • Total premiums eligible for GSV: 25,00,000
  • Accrued bonuses: Rs. 40,000

 The GSV for Dinesh’s plan will be calculated using the formula -

GSV = (GSV Factor X Total Premiums Eligible For GSV) + (GSV Factor X Accrued Bonuses (if any)

= (30% X 25,00,000) + (30% x 40,000)

= 7,50,000 + 12000

= 7,62,000

Thus, the Guaranteed Surrender Value of Rs. 7,62,000  is payable under Dinesh’s Endowment Plan.

2. Special Surrender Value (SSV)

The Special Surrender Value (SSV) is determined based on a variety of criteria, allowing insurance companies to periodically revise it with prior approval from the Insurance Regulatory and Development Authority of India (IRDAI). The calculation of SSV takes into account the following factors:

  • Sum Assured
  • Policy tenure
  • Paid Premiums
  • nvestment returns
  • Bonuses
  • The market value of financial assets like stocks, etc.
  • Demographic factors such as age, etc.

How Do You Calculate The Special Surrender Value?

You can calculate the Special Surrender Value using this formula -

 SSV = [ Sum Assured x (No. of Premiums paid / No. of Premium payable) + Total bonuses received ] x Special Surrender Value Factor

Now, let's recall Dinesh's example to understand how much Special Surrender Value is payable under his plan. Consider the surrender value factor for his policy at the time of surrender to be 30%.

  • SSV factor: 30% (assumed)
  • Sum assured: Rs. 60,00,000
  • Total no. of premiums paid: 10
  • Total no. of premiums payable: 15
  • Accrued bonuses: Rs. 40,000

The SSV for Dinesh's plan will be calculated using the formula -

SSV = [Sum Assured x (No. of Premiums paid/No. Of Premium payable) + Total bonuses received ] x Special Surrender Value Factor

= [60,00,000 x (10/15) + 40,000] x 30%

= [60,00,000 x (0.67) + 40,000] x 30%

= 40,60,000 x 30%

= 12,18,000

Thus, a Special Surrender Value of Rs. 12,18,000 is payable under Dinesh’s Endowment Plan.

How Much Amount Do You Get When You Surrender Your LIC Policy?

The amount you receive upon surrendering your Life Insurance Corporation (LIC) policy hinges on several factors, such as the policy type, the number of premiums paid, its duration, etc.

As discussed above, the surrender value encompasses two primary components:

  • Guaranteed Surrender Value (GSV)
  • Special Surrender Value (SSV)

Typically, the surrender value is calculated by selecting the higher of these two values.

How do you differentiate between Paid-up Value and Surrender Value?


Paid-up Value

Surrender Value


The reduced sum assured a life insurance policy qualifies for when premium payments cease after a specific period.

The amount payable when terminating a life insurance policy before its maturity date.


Relevant when premiums have been paid for a certain number of years, and the decision is made to discontinue further premium payments.

Comes into play when opting to terminate the policy prematurely, leading to the receipt of the surrender amount.


The policy continues with a diminished sum assured, offering reduced coverage compared to the original policy.

Surrendering a policy results in termination, leading to the loss of the entire coverage provided by the policy.

Premium payments

No further premiums are required, and the policy remains in force with reduced coverage.

The policy is terminated, and the surrender value is provided in cash.


How to Surrender Your LIC Policy?

Here is a step-by-step guide to navigate the surrender process and get the money you're entitled to:

  • Check Your Entitlement: If you got your LIC policy through a financial advisor or bank, reach out to them. Ask about the Guaranteed Surrender Value (GSV) or Special Surrender Value (SSV) you can expect if you surrender the policy mid-term.
  • Inform the Necessary Parties: If you decide to go ahead, get in touch with the insurance company, bank or your financial advisor. Let them know about your decision to surrender the policy.
  • Get the Surrender Form: Obtain the surrender form from the insurer's branch office. You can also ask your insurer to email it or check if it's available for download on their website.
  • Carefully Fill Out the Form: Take your time to fill out the surrender form, making sure all details are accurate. Keep a copy of the form for your records.
  • Submit the Form and Documents: Submit the filled-out form along with any other required documents to the insurance company. You can do this in person at the insurer's office or have your financial advisor handle the submission on your behalf.
  • Verification Process: Authorities will verify the submitted documents. Once the verification is successful, the surrender amount will be deposited into your bank account.

List of Documents Needed for LIC Policy Surrender:

  • Original policy documents.
  • Cancelled cheque with your name. If the cheque lacks pre-printed details, include a passbook copy or bank statement with a pre-printed name and account number.
  • ID proof (PAN Card, Aadhaar, Passport, etc.).
  • Latest contact details.
  • Any additional documents as required by the insurer.


After Surrendering Your LIC Policy: What to Expect

So, you've decided to surrender your LIC policy. Here's a quick rundown of what happens next:

  • Immediate Cessation of Coverage: Once you surrender the policy, coverage stops immediately. This means you won't have the safety net of the policy anymore.
  • No Future Policy Revival: The decision to surrender is final. There's no option to revive the policy in the future, so consider this choice carefully.
  • Loss of Policy Benefits: All the benefits tied to the policy, including potential bonuses or additions, become null and void. It's a clean break from the policy's perks.
  • Receipt of Surrender Value: You'll receive the surrender value, the amount determined by the time you held the LIC policy and other factors. This is the cash amount you get for ending the policy.

Considerations Before Surrendering Your LIC Policy

Deciding to surrender a Life Insurance Corporation (LIC) policy is a weighty financial choice. Take a moment to think twice for these reasons:

  • Loss of Life Coverage: Surrendering ends life insurance coverage, impacting the original family protection purpose.
  • Long-Term Financial Impact: LIC policies are long-term financial tools. Surrendering early might mean missing potential benefits and returns that accrue over time. The surrender value may fall short compared to holding until maturity.
  • Explore Alternatives: Before choosing to surrender, explore alternatives like adjusting coverage, taking a loan against the policy, or exploring other financial options tailored to your goals.
  • Family Financial Security: If the policy was meant to secure your family's financial future, surrendering would jeopardize this protection in case of your unfortunate demise.
  • Evaluate Future Implications: Surrendering may have consequences for future insurance coverage. Understand the potential impact on premiums or coverage difficulties in case of health changes.

It is wise to recognize that life insurance policies are designed for long-term benefits. Surrendering early may not yield the same financial advantages as holding until the full term. Explore alternative options tailored to your financial goals and circumstances instead:

  • Loan Against the Policy: Consider taking a loan against the policy, leveraging its value without surrendering it. This provides liquidity while maintaining the policy.
  • Partial Withdrawals (ULIPs): If your policy, especially unit-linked insurance plans (ULIPs), permits, opt for partial withdrawals. Access a portion of the cash value without surrendering the entire policy.
  • Convert to a Paid-Up Policy: Some life insurance policies may offer the option to convert into a paid-up policy. This involves stopping premium payments, with the policy continuing at reduced benefits based on prior premiums paid.
  • Premium Break Benefit: Some policies also allow a premium break benefit, letting you temporarily halt premium payments without terminating the policy. This provides relief while maintaining coverage.

All in all, surrendering your LIC policy can be tricky business if done without any prior knowledge of the pros and cons of doing so. The end game is to make sure that you do not end up losing on benefits for short term gains and while most concerns are legitimate there are always options to consider that help you plan your personalized term insurance strategy before you take the plunge.Contacting experienced professionals to give you an in-depth view is certainly an option.

Frequently Asked Questions about Surrendering LIC Policies:

  • Is it possible to surrender my LIC policy immediately after purchasing it?
    Typically, policies have a minimum holding period, varying among insurers and policies, before surrendering is allowed.
  • Will I receive funds immediately upon surrendering my LIC policy?
    The surrender process, involving approval, document verification, and determining surrender value, takes time before funds are disbursed.
  • Can I revive a policy that has already been surrendered?
    No, once a policy is surrendered and the surrender value is received, revival is not an option.
  • How is the amount determined when surrendering my LIC policy?
    The amount depends on the Guaranteed Surrender Value (GSV) and Special Surrender Value (SSV), influenced by factors like policy duration, premiums paid, and type. Consult with LIC representatives or review policy terms for specific details.
  • Will I receive a bonus upon surrendering my LIC policy?
    Surrendering may lead to a reduction in the overall payout, including bonuses (if applicable). The impact varies based on the policy type and terms.
  • Can I cancel my LIC policy and receive a refund?
     Cancelling a policy is distinct from surrendering. If you want to cancel the policy shortly after purchase, a free-look period may allow a refund, deducting specific charges such as administration fees, stamp duty charges, etc.

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