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How to Surrender LIC Policy?

14 August 2013 7,308 Views No Comment

Like many other young professionals, I went for LIC Jeevan Anand endowment policy. I was paying nearly 40,000 annually for a sum assured of 10 lakhs for 25 years. Slowly I started realizing that this policy is not worth paying this amount. Plus 10 lakh is not enough by any mean to survive in this era. Somehow I paid premium for 6 years and then I decided to look for alternatives.

For those who already have LIC policy and want to surrender it:

I called LIC customer care to know the surrender value of my policy. They gave me below two options:

  1. I surrender my policy and take the surrender value that was 124,000 INR
  2. I can stop paying anymore premium and my policy will turn into paid-up policy. In this case, I will get premium paid till date (240,000) + bonus till date (219,000) = 459,000 on maturity (i.e. after 19 years from now)

At first glance, 2nd option looks better. Is it really a better option? No…it is not. Here is some calculation.

If I surrender my policy and invest the surrender value 124,000 in Fixed Deposit for same 19 years. Assuming interest rate that I will get on this is 8% (I am sure one can get more than this if he deposit for 1-2 year and reinvest for same period on maturity). After 19 years, maturity value will be 558,514 at 8% interest compounded quarterly.

Surrender Value  124,000 INR
FD Maturity value after 19 years @ 8% interest  558,514 INR
Paid-up maturity value after 19 years  459,000 INR
Difference  99,514 INR

So I decided to surrender my LIC Jeevan Anand policy. Now, how to surrender? What is the process? To my surprise, process was much simpler than I expected it to be.

  1. Download the below three form
  2. Take print and fill the forms
  3. Put below documents in an envelope:
    • Filled and Signed above three forms
    • Original Policy certificate
    • Cancelled cheque leaf (of Bank account you mentioned in NEFT Mandate Form and Cheque should have your name printed).
    • If cheque doesn’t have your name printed, add last 6 months bank statement
  4. Take a photocopy of all above documents for your reference
  5. Submit the envelope to LIC Branch from where policy was issued. Else courier it to that branch

Process is fast and you will get the money within a month in your account. I got 127,000 within 20 days.

For those who want to go for LIC endowment policy:

If you are looking for LIC endowment policy as an insurance option, I would suggest reading below lines before buying LIC endowment policy.

Taking my case of Sum assured 10 lakhs for annual premium of 40,000 for 25 years. I would break this 40,000 into two parts.

  1. HDFC Click2protect term insurance plan with sum assured of 1 crore for 25 years. You will pay premium of 10,000 for this. You will get nothing incase you survived for policy term of 25 years.
  2. Invest rest 30,000 annually to recurring deposit or PPF for 25 years. Assuming interest rate of 8.5%, you will get 25+ Lakhs on maturity.

Now we will compare LIC option and Term insurance plus PPF option:

Total premium paid in LIC  10 Lakhs
Total bonus in LIC  12.5 Lakhs
Total amount you will get in LIC on maturity  22.5 Lakhs
Insurance Coverage in LIC  10 Lakhs
Insurance Coverage in Term Insurance + PPF  1 Crore
Maturity value after 25 years in Term Insurance + PPF  25 Lakhs

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