How to Surrender LIC Policy?
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:
- I surrender my policy and take the surrender value that was 124,000 INR
- 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|
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.
- Download the below three form
- Take print and fill the forms
- 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
- Take a photocopy of all above documents for your reference
- 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.
- 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.
- 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|