How to Surrender a Life Insurance Policy?

Life insurance policies like endowment plans and money-back plans are designed to help you build long-term financial security. However, circumstances may change, prompting you to consider exiting the policy before maturity. Surrendering a life insurance policy means voluntarily terminating it and receiving the surrender value, often at the cost of losing future benefits, life cover, and part of your invested amount. Understanding the implications before making this decision is crucial.

In insurance, surrender means voluntarily closing or terminating a life insurance policy before it reaches maturity or before a claim event occurs. When you surrender a policy, you stop paying future premiums and the life cover under the policy ends. In return, the insurer may pay you a surrender value, if applicable. This amount is typically a portion of the premiums you have paid so far, after deducting certain charges as per the policy terms.

Why Avoid Surrender of Life Insurance Policy?

While the process of surrendering your life insurance policy is short and simple, you should be certain about the step. Here’s why:

• Life insurance benefits accumulate over time

• Older policies have exponentially better portfolio growth

• You lose a big part of your benefits from the policy with an early surrender

• The new life insurance plan will be more expensive due to an increase in your age

• You can take a loan against the policy instead of surrendering and losing all future benefits in case of emergencies

You should always check the surrender value you will receive from the policy. Also, you can borrow up to 90% of this surrender value at nominal rates. Borrowing against the policy ensures that your benefits continue to pile up while you can meet your needs easily.

Process of Surrendering the Policy

After looking at all the alternative solutions, if you find that the policy still needs to be surrendered, here’s what you can do:

• Make sure the policy is not in the lock-in period. Lock-in period for:

  1. Endowment and money-back plans are three-year plans

  2. Unit-Linked Insurance Plans are five years old

• Complete the policy surrender form and visit the nearest branch of the insurer to submit the following:

  1. KYC Documents: Photo ID, Address Proof

  2. Bank Account Proof: Passbook Copy, Cancelled Cheque

  3. Original policy document

After submitting the application, the process takes about 10-15 days to complete, and you should receive the surrender value in your account.

Policies That Cannot Be Surrendered

Not all life insurance policies offer a surrender value. Plans that are purely protection-oriented or have strict lock-in conditions may either provide no payout or impose significant restrictions if terminated early.

Pure protection life insurance policies, such as term insurance plans and critical health insurance, do not have a surrender value. Although the term plan with a return of premium option and a steady income benefit will have a surrender value.

In the case of a single-premium term insurance plan, you may receive part of the prorated premium for the completed duration of the policy.

Wrapping Up

Surrendering a life insurance policy is a major financial decision that can impact your long-term goals. Before opting for policy surrender, evaluate the life insurance surrender value, charges, and alternatives like loans or paid-up options to make an informed choice.